Central bank needs to improve public disclosure mechanism

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banks because their licenses had been revoked.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)