Governnment statement on bank closure
JAKARTA (JP): The following is the full text of the government's statement on the closure of 16 commercial banks, which was announced Saturday.
Banks, as financial intermediaries that collect and distribute the funds of society, play a strategic role in the Indonesian economy. For this reason, banks must continuously safeguard their financial health in order to maintain public trust. This condition can only be achieved if, in their business activities, banks continuously implement principles of prudent and sound banking practices and are responsive to the guidance of the central bank as the bank supervisory authority.
Based on the results of the investigation conducted by Bank Indonesia, the financial condition and business development of several banks has been found to be unhealthy. These banks are insolvent to the point of endangering business continuity, disturbing the overall banking system, and harming the interests of society. On the basis of existing regulations and laws, Bank Indonesia has continuously endeavored to rescue banks that face difficulties. These efforts have included, among other steps: changing the bank's board of commissioners or directors; requesting shareholders to increase their capital; improving the quality of earning assets; seeking new investors; and encouraging business consolidation or acquisition by sound banks.
As a result of these efforts, a number of problem banks have been successfully rescued and at this moment are carrying on their business in a sound and orderly fashion. Nonetheless, there exist several banks that are still facing serious structural difficulties and the effort to rescue these banks has not produced the expected result.
In consideration of this situation and the framework of strengthening the national banking system, as decided in the limited cabinet meeting of economy, finance, development supervision, production and distribution on the 3rd of September 1997, the government is taking steps to liquidate banks that can no longer be rescued, in accordance with existing regulations, while safeguarding small depositors to the fullest extent possible. For this reason, the Government has decided to withdraw the licenses of 16 commercial banks (see table)
In taking these steps, the government has considered various factors and has weighed different interests, particularly those of depositors. Moreover, the government is fully aware of the impact of this decision. Therefore, parties that have direct or indirect interests in the banks that are to be liquidated are requested to note the following : 1. Customers with savings at these banks, whether in the form of saving deposits, checking deposits, or time deposits, will be able to recover their savings up to the amount of Rp 20 million (about US$5,800) per account, using bridge financing from the government. By covering deposits up to this amount, the savings of around 93.7 percent of the total number of depositors at the liquidated banks will be protected. 2. With respect to the employees of the liquidated banks, the government will implement Article 23 of the government regulation No.68/1996 concerning the rule and procedure for withdrawing business licenses, bank closure and liquidation. 3. All creditors of the liquidated banks, such as other banks, holders of commercial papers issued by the liquidated banks, and other creditors, will be paid from the proceeds of the sale of the banks' assets if funds are available after liquidation. 4. All debtors are required to fulfill their obligations, with implementation carried out by the liquidation team. If they do not fulfill their obligations, legal sanctions will be imposed in accordance with existing regulations. 5. Owners and shareholders of the liquidated banks are responsible for all consequences that arise and are obliged to cooperate with the liquidation team. 6. All parties involved in the management of the banks, namely shareholders, the Board of Commissioners, the Board of Directors, and other bank employees, are instructed to exercise extra caution in bank management and base their activities on the principles of sound and prudential banking. We also hope that banks will draw a lesson from this action of the government so that preventive measures can be taken as early as possible.
It should be emphasized that all banks that are not liquidated will carry out their operations as usual. 7. To the public at large, we would like to emphasize that this action of the government is taken in order to revitalize the national banking system. Therefore, we appeal to all members of society to remain calm. All consequences that arise as a result of the closure of these banks will be handled by the Joint Team from related institutions, namely, Bank Indonesia, the Ministry of Finance, the Attorney General's Office, the Police, and the Ministry of Manpower. Further steps required as a consequence of the closure of these banks will be carried out by each bank's liquidation team.