Governnment statement on bank closure

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.