BI revises ruling on bank guarantee scheme

JAKARTA (JP): Bank Indonesia (BI) has revised the formula devised for calculating the maximum interest rates which make third party funds eligible for protection under the government bank guarantee scheme.

Bank Indonesia deputy director for monetary management Tarmiden Sitorus said that the change was made because the interest rate was now less volatile compared to previous years.

He said that under the revised ruling, the maximum interest rate for banks' third party funds eligible for the guarantee scheme was calculated based on the average time deposit interest rate of the previous month at selected banks (those contributing to the Jibor or Jakarta interbank offering rate), plus a 300 basis point margin for rupiah deposits and 100 basis points for U.S. dollar deposits.

Under the previous ruling, the maximum interest rate was calculated based on the average interest rate of the previous week.

Tarmiden also said that under the new ruling, the interest rate limit would be valid for a one-month guarantee period, compared to a one-week period previously.

He added that the announcement of the interest rate limit would now be made two-days prior to the end of each month. Previously, the announcement was made every Friday.

He said that a new interest rate limit would be announced Friday (today), which would be valid for the entire month of April.

The government launched the bank guarantee scheme in early 1998 in a bid to help revive confidence in the country's embattled banking sector. Under the program run by Bank Indonesia, the government will guarantee third party funds, both in rupiah or foreign currencies, deposited in domestic banks in case the banks are closed down. The government also guarantees interbank loans.

But the government will not guarantee third party funds carrying interest rates beyond the tolerable limit set by the central bank.

Last week, the maximum interest rate for a 1-month rupiah time deposit was set at 15.39 percent, 3 months at 15.78 percent, 6 months at 15.84 percent, 12 months at 15.9 percent and 24 months at 16.65 percent.

For a U.S. dollar 1-month deposit the interest rate was set at 6.63 percent, 3 months at 6.71 percent, 6 months and 12 months at 6.77 percent, and 24 months at 6.85 percent.

The interest rate limit for rupiah interbank loans last week was set at 13.26 percent, and 4.9 percent for dollar loans.

Tarmiden said that under the new ruling, the interest rate limit on interbank loans was calculated based on the weighted average of the overnight interbank market rate offered by the Jibor banks in the previous month.

He said that the interest rate limit of the interbank loans would also be valid for a one-month period compared to the previous one-week period.

Meanwhile, another Bank Indonesia senior official, Nelson Tampubolon, said the central bank and the government were still in the process of discussing how to end the costly bank guarantee scheme.

He said that there was a plan to introduce a deposit insurance scheme to replace the government blanket guarantee scheme.

He said that it was too early to decide when the government guarantee scheme would be replaced.

"The government guarantee is still needed to maintain confidence in the domestic banking sector," he said.(rei)