Banking authority urged to help public screen banks

Dadan Wijaksana, The Jakarta Post, Jakarta

As it is the public who will bear the brunt of government plans to terminate the blanket guarantee on bank deposits, the banking authority must require banks to improve transparency to allow depositors to screen fit banks, the Indonesian Consumer Foundation (YLKI) said.

YLKI chairwoman Indah Sukmaningsih said Tuesday the government must guarantee the people's right to information to prevent them from becoming victims of a bank's bad management.

"The fulfillment of the public's right to information remains the responsibility of the regulators. The question is, are they capable of doing that?," Indah told The Jakarta Post.

She added that the public's right to information on a product or service was guaranteed by the Law on Consumer Protection No. 8/1999.

The government plans to phase out its costly blanket guarantee program on bank deposits and claims, starting early next year. If approved by Cabinet, the policy would be announced at the end of this month.

Under the plan, the government blanket guarantee program would completely end in February 2004. Only bank deposits worth less than Rp 100 million (US$11,000) would be guaranteed by a new deposit insurance scheme.

As a consequence, the people have to be extra careful when choosing a bank to lessen the risk of losing their funds when the banks go under.

This could spell trouble as the public has limited access to information on a bank's true condition, so it would not be easy to determine whether a bank is healthy or not.

There is concern that the termination of the guarantee would trigger capital outflow as the condition of local banks are generally still fragile. Out of Rp 800 trillion worth of third party funds, small-sized deposits worth Rp 100 million or less only represents 25 percent.

Analysts have said that most people will face difficulties in assessing the condition of banks partly due to the lack of transparency and an inability to understand financial figures.

YLKI also urges the government or the central bank to come up with a way the public can easily assess which banks are viable.

"This shows that the government can not just sit back and let the people do all the assessments when deciding which banks they should choose," Indah said.

"It is the authorities task to provide the public with the information they need," she said.

Meanwhile an economist at a state-owned bank welcomed the program, saying it would benefit both the banking sector and consumers.

Arry Basuseno said that for the banking sector, the program would eventually force local banks to be more competitive, prudent and efficient, otherwise they would be abandoned by customers.

While on the other hand, the absence of the blanket guarantee program would make the public more selective and careful in depositing their funds, he said.

"If they are not selective, their funds would vanish once their banks are proven insolvent, because there is no protection from the government.

"This selective attitude would stimulate competition among the banks, and this is good since the banking sector will be more efficient and healthy," said Arry.

However, Arry said that the government should also consider possible losses which might stem from the competition, especially from the local banks.

"Are the local banks ready to face competition with foreign banks?," he asked rhetorically.