LPS starts operation, replaces blanket guarantee
The Jakarta Post, Jakarta
The Deposit Insurance Agency (LPS) has started operations, replacing the government's blanket guarantee on bank liabilities and requiring the participation of all banks -- including international ones -- in its new guarantee scheme.
The Ministry of Finance's Director General of Financial Institutions Darmin Nasution said on Tuesday that the LPS had been established and in operation since Sept. 22, according to Law No. 24/2004 and Government Regulation No. 32/2005 on the agency.
He said all banks operating in the country are required to participate in LPS' new guarantee scheme by becoming members, to ensure the continued protection of depositors.
"All commercial banks must become members of LPS, including international banks with permits to operate and provide banking services in the country," he said. "If they don't, they are violating the law and will be sanctioned in accordance with the banking law."
Under the government's previous blanket guarantee scheme, international banks were not required to participate.
Darmin, who led the government's team in setting up the LPS, said the government has asked the banks to fulfill the necessary membership requirements by Nov. 22 at the latest.
The requirements include submitting their permits and approvals from their management and shareholders, as well as paying a contribution and premium.
The one-time participation contribution will be levied at 0.1 percent of a bank's equity while the premium fee will be 0.1 percent of a bank's third-party liabilities to be paid every semester.
Data from the central bank shows that equity in the banking sector amounts to Rp 80 trillion (US$7.79 billion) while their third-party liabilities are Rp 980 trillion.
The House of Representatives had previously approved Rp 4 trillion as LPS's initial guarantee fund and allowed it to invest in government bonds and Bank Indonesia's (BI) promissory notes for its operational needs.
On the same occasion, Darmin also announced the agency's board of commissioners and directors.
Incumbent Bank Rakyat Indonesia (BRI) president commissioner Rudjito was named as LPS president commissioner while BRI director Krisna Wijaya will serve as LPS chief and as a commissioner. The two will resign from their present posts at BRI pending the bank's meeting of shareholders.
Other commissioners include financial supervisory experts Markus Parmadi and Pontas Riyanto Siahaan, BI deputy governor Maman H. Somantri and Darmin himself.
Two finance ministry officials will assist Krisna -- Firdaus Djaelani as LPS' director for guarantee and risk management, and Mirza Mochtar as the agency's finance and investment director.
Darmin said the LPS would continue to guarantee all savings and deposits until March 22, 2006.
From then, LPS will only guarantee savings and deposits up to Rp 5 billion per depositor per bank until Sept. 21, 2006, or up to Rp 1 billion until March 21, 2007 and only up to Rp 100 million from then on.
LPS' establishment is considered a milestone in improving Indonesia's banking sector.
The government had to set up the costly scheme when depositors rushed several banks during the 1997 financial crisis, fearing they would not be able to recover their funds if the banks collapsed in the crisis.
Although the scheme helped to restore the public's trust towards banks, it has long strained the cash-strapped government and tended to encourage bankers to neglect prudent banking practices.