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)