BI closes Unibank as CAR drops below zero

Berni K. Moestafa, The Jakarta Post, Jakarta

Bank Indonesia closed on Monday the publicly listed PT Unibank, after days of massive runs against the bank had plunged its capital adequacy ratio (CAR) into negative territory.

Bank Indonesia Senior Deputy Governor, Anwar Nasution, said the Indonesian Bank Restructuring Agency (IBRA) would take over Unibank to handle its closure.

"As of October 29, 2001, Bank Indonesia has placed the bank under suspension and has surrendered PT Unibank to IBRA," Anwar said in a press meeting.

He said Unibank's closure would also require the government to call in its blanket guarantee scheme to cover the bank's third party funding.

IBRA would be in charge of resolving the bank's liability through this state guarantee scheme, he said.

He said Unibank owned third party liabilities of some Rp 3.1 trillion (about US$302.14 million), which would roughly represent the amount the government must cover.

IBRA would also attempt to recoup from the bank's owners the public money used under the blanket guarantee, and ensure that Unibank's employees obtained their rights.

Anwar called on clients of Unibank to remain calm, saying their accounts were safe under the state blanket guarantee scheme.

Clients may withdraw their money at Unibank's branch offices starting Monday, Nov. 5, he explained.

Unibank has been suffering from a heavy run on deposits, which reportedly began in Medan last week. On Monday, hundreds of people in Medan descended on the bank hoping to withdraw their funds, but it had already been shut down.

Anwar said the heavy run suffered by the bank had plunged its CAR level into negative territory.

He did not provide details of Unibank's latest CAR position, but Bank Indonesia regulations require a minimum CAR level of four percent, and must be at least 8 percent by the end of this year.

According to Anwar, the small institution's financial troubles mainly stemmed from its violation of the legal lending limit for banks.

Unibank had channeled some 51 percent of its loans to affiliated companies that were unable to repay them, he said.

This compares to 20 percent of a bank's loans allowed under Bank Indonesia's legal lending limit rule.

Bank Indonesia, he said, had been trying to nurture Unibank back to health since 1998 when it was placed under special surveillance by the central bank.

"We gave the bank's management more than enough time when the bank was under Bank Indonesia's special surveillance period, yet its financial position kept worsening," he said.