Five commercial banks under BI surveillance

Five commercial banks under BI surveillance

JAKARTA (JP): Five commercial banks including one publicly
listed bank are currently under the special surveillance of the
central bank, according to Bank Indonesia deputy director for
banking supervision Sabar Anton Tarihoran.

Sabar said Friday that the banks had escaped the latest round
of banking closures because the owners had injected fresh money
to lift the banks' capital adequacy ratio (CAR) to beyond the
minimum 4 percent requirement.

"But the banks remain under the special surveillance status
because we still need to intensively monitor their performance
until they improve," he told a press conference.

"And there are already signs of improvement," he added.

Sabar declined to name the banks.

He explained that although the owners had recapitalized the
banks, it would be futile if they continued to perform poorly as
the financial losses would eat into the capital.

He said that according to the existing ruling, the central
bank would close a bank if its CAR level dropped to below the 4
percent level or if its non-performing loan (NPL) was more than
35 percent.

"But we're putting greater stress on CAR because it reflects
the owners responsibility," he said.

The five banks were transferred into the special surveillance
unit of the central bank along with Bank Ratu and Bank Prasidha
on June 12. Bank Indonesia closed down the latter two banks last
week because their owners failed to inject fresh money to improve
the banks' CAR condition.

The banks are part of the 75 "A-category" banks which did not
join the government bank recapitalization program launched last
year because their capital was adequate.

Separately, Bank Ratu lawyer Hotman Paris Hutapea said Friday
that the bank was planning to file a legal suit against Bank
Indonesia following the closure of the bank.

Hotman said that the central bank had sent two contradictory
letters to his client.

He pointed out that on Oct. 17, the central bank sent a letter
giving Bank Ratu two weeks to inject Rp 10 billion and to hold a
shareholders meeting to approve new investments.

But he said that the central bank sent a closure order to Bank
Ratu on Oct. 20, before the initial deadline expired.

Meanwhile, Sabar said that Bank Indonesia had given Bank
Ratu's owner enough time to inject the necessary capital.

Sabar pointed out that even prior to June 12, the central bank
had already reminded the bank's owner of the bank's CAR
condition.

He said that the bank was first given until September 12 to
come up with fresh money, but that this was extended again and on
October 12 the owner finally came to the central bank with a new
investor called GKBI (an association of cooperatives in the
traditional batik textile industry), which promised to inject Rp
10 billion.

Sabar said that the new investor was given a week to deposit
its money in an escrow account, but as of October 19 GKBI had
failed to meet the deadline.

A total of 68 commercial banks have been closed down since the
country's financial and economic crisis started in the middle of
1997.

The central bank closes down banks with CAR below the 4
percent level if their contribution to the national economy or
regional economy is not significant or their number of depositors
is less than 150,000.

The government guarantees depositors money from a bank that
has been closed down. So if a bank with a huge number of
depositors is closed down, the government would spend more than
they would through recapitalizing the bank or merging it with a
healthier bank. (rei)