Central Bank anounces new banking regulations

Central Bank anounces new banking regulations

JAKARTA (JP): Bank Indonesia (BI) on Tuesday announced several
new banking laws, designed to limit foreign exchange and lending
risks, and to improve transparency.

BI director Subarjo Joyosumarto said the central bank had
lowered banks' maximum net open foreign exchange to 20 percent of
capital, from the previous 25 percent, to reduce the risks of
exposure on foreign exchange.

"The changes in the net open position condition are intended
to encourage banks to be more careful when taking forex position
as an anticipation on possible future losses due to exchange rate
fluctuation," Subarjo told reporters at a press conference.

He said that the new ruling was signed by Bank Indonesia
Governor Sjahril Sabirin on Dec. 31, 1998 and was effective since
the announcement.

He added that banks breaching the new ruling would face
stiffer sanctions according to the new 1998 Banking Law.

The net open position is the difference between a bank's long
and short-term foreign exchange position.

Subarjo said the central bank had also introduced a ruling on
the legal lending limit of banks.

He said the lending limit to a non-affiliated single party had
been relaxed to 30 percent of capital, from the former maximum of
20 percent, for the period until Dec. 31, 2001.

He said the new ruling was effective as of this announcement.

The lending limit would be tightened to 25 percent from Jan.
1, 2002 until Dec. 31, 2002, he said, adding that the limit would
be returned to the 20 percent level beginning 2003.

Certain lending activities, however, were allowed to surpass
the 30 percent limitation, Subarjo said.

This included extending heavily subsidized government loans in
which the bank was the executor, and lending to open letters of
credit, he said.

He added that funds for buying Bank Indonesia promissory notes
and government-guaranteed bonds were excluded from any of the new
lending limits.

Subarjo also dismissed worries that the new 30 percent lending
limit requirement could be abused by bank owners to recapitalize
their ailing banks, saying the central bank's supervision system
had greatly improved.

He said that according to the new 1998 Bank Law No. 10, banks
were now obliged to issue financial reports every quarter,
compared to only twice a year under the earlier laws.

He added that the new reporting schedule, which will start in
June, must include records of lending and capital status.

He said that under this new law, banking secrecy only covered
the liability side, not the asset side.

Subarjo said that banks breaking the lending limit would be
asked to provide an action plan to return the legal lending limit
to the allowable level in one month, BI would then give two
further warnings before sanctioning administrative or criminal
penalties for failing to implement the action plan.

He said, however, that lending in excess of the official limit
due to a drop in the rupiah's value would be given lighter
penalties, including a nine-month period for bringing lending
back into tolerable levels before being penalized.

Subarjo said that banks with a negative capital adequacy ratio
were not allowed to lend money, as it would automatically breach
the lending limit requirement.

He, however, added that state-owned banks and private banks
which had joined the government bank recapitalization program
were excluded from this requirement. (rei)