BI to bar rogues from bank sector

BI to bar rogues from bank sector

JAKARTA (JP): Bank Indonesia, the central bank, will soon introduce a ruling barring certain people from becoming shareholders or executives of banks.

Bank Indonesia (BI) Governor J. Soedradjad Djiwandono said on Saturday that the ruling would be important in protecting commercial banks from unreliable and irresponsible people, who could undermine their operations.

"The criteria for barring people will be soon issued," he said in his address to a seminar on the 1995-96 state budget plan.

Soedradjad said that the ruling would be one of the measures to be taken by the central bank during the next fiscal year, which begins in April.

Bank Indonesia will also issue a ruling requiring commercial banks to submit corporate plans and reports about credits given to affiliated companies, shareholders or members of their executive boards, as well as to institutional borrowers.

The central bank governor said that debt problems would remain one of the major challenges to the country's banking industry next year despite improvements in the collectibility of their loans.

"For that purpose, Bank Indonesia is considering gradual write-offs of the bad debts of private banks," he said, adding that the measure would enable banks to operate more flexibly.

Other measures to be taken next fiscal year include improvements to guidelines for formulating lending standards, improvements to the information system on lending and improvements the internal auditing system.

Not just good

Regarding the performance of Indonesia's commercial banks last year, Soedradjad said that "it was not just all right".

He expected that the banking industry would continue to improve both in terms of management and operation, given the fact that state-owned and private banks had generally been able to meet, not only Bank Indonesia's requirements, but also international standards set by the Basel-based Bank for International Settlements.

Speaking at the seminar, which was held by the Prasetya Mulia school of management, the central bank governor said that 92.9 percent of the country's banks have met the minimal Capital Adequacy Ratio (CAR) of eight percent.

"The average CAR of the country's banks reached 12.2 percent as of September," he said, indicating that the ability of most banks to meet the minimal CAR requirement was an important sign of improvement in the banking industry.

He said that the quality of banking credits had also shown improvement, resulting in better profitability.

"The average return on assets of banks reached 1.3 percent as of last September," he said, adding that the figure was higher than the minimal standard of 1.2 percent set by the central bank.

Soedradjad said that the central bank would maintain its prudent monetary policy despite the improvement in both the industrial and banking sectors last year.

He said that keeping the inflation rate at below 10 percent, maintaining the current account deficit at below two percent of the Gross Domestic Product, as well as maintaining the competitiveness of the rupiah are the central bank's main concerns.

To achieve its targets, Soedradjad said, the central bank would limit the expansion of money in circulation and credits at 20 percent and 19 percent, respectively, to curb inflationary pressures, which are expected to grow in line with stronger domestic demand and a predicted increase in the construction of new industrial factories.

"We have to be cautious about possible economic overheating," he said, adding that the inflation rate, which reached 9.24 percent in 1994, should be pushed down this year to ensure that the economy, whose growth has been projected to increase from 6.7 percent last year to above seven percent this year, will not overheat. (hen)