BI imposes ceiling on forex deposits and liabilities

JAKARTA (JP): The central bank, Bank Indonesia, introduced yesterday ceilings on banks' foreign exchange deposits, foreign exchange nontrade and trade related liabilities, including letters of credit.

Ceilings on credit growth and interest rates have also been imposed, the Bank Indonesia (BI) and the Indonesian Bank Restructuring Agency (IBRA) said in a joint statement yesterday on initial measures for Indonesian bank restructuring.

The measures were taken to prevent irregularities that might result from the government's decision last week to guarantee domestic banks' obligations to depositors and creditors, they added.

"BI and IBRA demand that bank managers behave responsibly, keeping in mind the interests of the country," said the statement sent to The Jakarta Post yesterday.

The two institutions also asked banks to thoroughly review their assets and contingent liabilities and assess realistically all the losses they contained.

BI and IBRA warned that any transaction designed to abuse the guarantee scheme would be equivalent to embezzlement of the public's money.

In an effort to rebuild faltering confidence in the country's banking industry, the government last week announced a blanket guarantee of deposits and debts of all banks incorporated in the country, including joint venture banks, and set up IBRA in charge of rehabilitating the banking sector.

Both IBRA and BI had been working closely together to define a comprehensive restructuring strategy to rectify the condition of the banking sector.

They added that after introducing the guarantee scheme the first priority was to improve understanding of the condition of the banking sector, including the impact of the current difficult macroeconomic conditions on banks' balance sheets.

"The assessment will be completed shortly," the two institutions said.

A twofold resolution strategy had also been defined: rectifying the damage of the past, and preparing for the future, added the statement, which was signed by BI's managing director Mukhlis Rasyid and IBRA's chief Bambang Subianto, who is also director general of financial institutions at the finance ministry.

They said the process of rectifying the damages to banks' financial structures would involve two measures.

First, making fully apparent and then allocating the assets accumulated by the banks. The losses would be distributed first to the banks' owners and the holders of subordinated debts and thereafter to IBRA.

Second, preparing for the future. IBRA would review the prospects of the banks placed under its responsibility, and decide on the best approach for restructuring each of them, the institutions said, adding that external help might be used when appropriate.

"IBRA will foster the merger of clusters of banks presenting synergies and will also attract new investors, including from abroad," they said.

Following the sharp fall of the rupiah against the U.S. dollar and the closing down of 16 banks in November, confidence in the country's banking sector waned. The public withdrew deposits, and foreign banks became increasingly reluctant to accept letters of credit issued by Indonesian banks.

Some 70 banks were reported to have signed the government's guarantee scheme to lure back depositors.

The banks had to pay a half-year fee of 0.05 percent of total guaranteed deposits and debts. Loan growth would also be limited to 2 percent per month, while interest rates for rupiah would be based on Jakarta interbank offered rate (Jibor) and foreign exchange deposits on Sibor (Singapore interbank offered rate). b(08)