Central bank needs to improve public disclosure mechanism

JAKARTA (JP): Bank Indonesia (BI), the central bank, should be able to find better ways of informing the public about the condition of the country's commercial banks without having to violate the 1992 Banking Law, said a banking analyst yesterday.

Remy Sjahdeini said the central bank's transparency in the condition of banks had nothing to do with the secrecy provision in the banking law.

"The clause is not related to the restriction of disclosing an individual bank's condition, but its on revealing a customer's financial condition."

He said BI was prohibited from disclosing a bank's financial condition by a stipulation in the banking law. Monetary officials found guilty of violating the clause can be sentenced to one year in jail and be released from their position.

Public demand that the central bank disclose the financial conditions of banks has come into the spotlight, especially since authorities closed 16 private banks on Nov. 1 last year as part of an IMF-led loan deal to rescue the country's battered economy.

"Many question the criteria for the liquidation," Remy said at an informal gathering of journalists and banking experts organized by Yayasan Bina Pembangunan, a non-governmental organization.

A case in point is PT Bank Jakarta, which has muscled its way through the court so it could make the government revoke its decision to shut down the bank.

The bank's majority shareholder, Probosutedjo, who is also President Soeharto's foster brother, claimed his bank was financially sound.

"This has led the public to wonder the faults of the other shattered banks," Remy, the former director of state bank BNI, said.

He said such suspicious attitudes surfaced because the public's only device to measure the condition of banks was through their balance sheets. BI's silent policy on such matters made things worse, raising public concerns that the central bank was hiding behind the banking secrecy.

Remy argued that banking secrecy did not apply to liquidated banks because their licenses had been revoked. "For that reason, BI must publicly disclose the sins of the liquidated banks."

He said the disclosure of liquidated banks would not prompt a run. Customers of the liquidated banks had the right to clarity of information and the disclosure could become a good lesson for the industry.

He said the disclosure should also make clear which of the closed banks were risking the industry's overall sustainability; what were the prescriptions being given by the central bank to the shattered banks; and what was the time-length given to the liquidated banks to sort out their mess. "BI must publicly disclose such information," Remy said.

Despite the secrecy stipulation, he said, the central bank was not restricted from giving its assessment of the overall banking industry. He conceded, however, that the central bank had started taking such responsibility by announcing extensive violations of the legal lending limit by the industry.

He further said the central bank could cooperate with independent rating agencies such Moody's, Standard & Poor's and PT Pefindo, the country's only rating agency. "Another way is of course by changing the 1992 banking secrecy stipulation." He admitted, however, that such a change could take a long time to implement.

The important thing, Remy said, was the need to realize a deposit insurance scheme. Such a scheme could be based on the 1973 regulation on banking deposit guarantees. "Without a safety net, public disclosure would only stimulate bank runs," he said. (08)