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)