Seven ailing banks suspended

JAKARTA (JP): Minister of Finance Fuad Bawazier announced yesterday the suspension of seven commercial banks and the placing of another seven under the management of the Indonesian Bank Restructuring Agency, including large Bank Danamon, Bank Dagang Nasional Indonesia and state Bank Ekspor-Impor Indonesia.

Fuad told a media conference, however, that the government stood by its pledge to guarantee every rupiah of the money owned by depositors and customers in the 14 banks.

"There is no need to rush to withdraw your money on Monday. Your money is 100 percent safe," he said.

Fuad accompanied a team from the Indonesian Bank Restructuring Agency (IBRA), set up by presidential decree early this year to monitor and assist in the operation of all problematic banks, in the conference held in his office.

"These decisions are part of the ongoing national banking reforms to restore its reputation and regain the confidence of people at home and abroad.

"They are part of an overall strategy of restoring our economy, and they are part of our efforts to strengthen the rupiah's exchange rate," Fuad said.

The government is working to establish a safe and prudent banking industry, one that is sufficiently liquid, prudently managed, tightly supervised and complies with standard rules and regulations, he said.

IBRA chairman Iwan Prawiranata said the agency froze, with immediate effect, the entire operation of Bank Kredit Asia (aka Istismarat), Centris International Bank, Deka Bank, Bank Subentra, Bank Pelita, Hokindo Bank and publicly listed Bank Surya. All their liabilities, excluding those of the banks' owners, would be handled by state Bank BNI.

Iwan said IBRA had taken over the management of six publicly listed banks: Bank Dagang Nasional Indonesia, Bank Danamon Indonesia, Bank Umum Nasional, Bank Tiara Asia, Bank PDFCI and Modern Bank. In addition, it has also taken over the management of state Bank Ekspor-Impor Indonesia.

The banks placed under the management of IBRA would continue to operate as normal, except IBRA would manage them in cooperation with a number of state banks.

IBRA has effectively became shareholders of the banks until new managements with full control of the banks are found.

In the case of Bank Ekspor-Impor, it will be placed under strong surveillance while the management of Bank PDFCI will be replaced.

Fuad said the government had given several warnings to the 14 banks and informed them of the consequences of their failure to take corrective action.

"In the best interests of the banking sector as a whole, we are making the changes required in an orderly manner," he said.

The announcement came one day after a hectic run on some of the banks, particularly Bank Danamon, fueled by rumors of impending liquidation or other drastic government measures imposed on some of the banks.

The run forced Bank Indonesia Governor Sjahril Sabirin to issue a strong denial, including taking out huge advertising space in some newspapers yesterday, to calm depositors.

Many branches of Bank Danamon, the country's second largest private bank, were open until late Friday to cater to panicked customers, but by Saturday morning the bank had suspended the operation of all its automatic teller machines.

The banking industry has repeatedly been shaken by runs on banks since the government closed down 16 insolvent banks in November. To quell the fears, the government set up IBRA in January and guaranteed that people's bank deposits were safe and that there would be no more bank closures for the next two years.

Bank Kredit Asia and Bank Pelita were controlled by businessman Hashim Djojohadikusumo, while Bank Subentra and Bank Surya were controlled by Sudwikatmono, Bank Centris by Andri Tedjadharma, Deka Bank by Dewanto Kurniawan and Bank Hokindo by the Hokianto family.

Bank PDFCI was controlled by PT Bahana Investa Argha, BDNI by businessman Sjamsul Nursalim, Bank Danamon by Usman Atmadjaja and the BCA group, Modern Bank by Samadikun Hartono. Bank Umum Nasional was jointly controlled by PT Kejayaan Budi and Mohamad "Bob" Hasan, and Bank Tiara Asia was part of the Ometraco group.

Iwan disclosed that Bank Indonesia, the central bank, had handed over the supervision of 54 banks to IBRA because they were deemed problematic, and, unless their problems were addressed, they could threaten the existence of other banks.

He said the remaining 40 banks under its supervision would be monitored closely and assisted wherever possible to restore their health.

The singling out of seven banks by IBRA for suspension was based on two criteria, he said.

The criteria were that they had received Bank Indonesia liquidity credits exceeding 500 percent of their equity, and the ratio of these credits had exceeded 75 percent of their total assets.

"This essentially means that over three-quarters of their assets had been financed by liquidity credits," Rini M.S. Suwandi, IBRA deputy chairperson, said.

The seven banks whose managements have been taken over by IBRA had not met the first criteria, but they had received over Rp 2 trillion in Bank Indonesia liquidity credits and the ratio had exceeded 500 percent of their assets.

"They still can be saved but they have to be placed under close supervision. That's why we decided to take over their managements," said Rini, who is finance director of the Astra Group.

Rini explained that Bank BNI had been assigned to handle all the liabilities -- deposits, savings and check accounts -- of the seven suspended banks.

The total liability of the seven frozen banks -- before due diligence is performed -- is put at about Rp 3 trillion.

Depositors and fund owners are advised to visit a number of appointed Bank BNI branches, either to withdraw their money or to open new accounts with BNI, starting Monday, she said, adding: "But I hope they will become Bank BNI customers."

Widigdo Sukarman, Bank BNI president, told the briefing that he had been given a list of depositors and fund owners in the seven banks. "Together, they represent 106,000 accounts at almost 100 different branches," he said.

"There is no need to rush. Don't all come to the bank on Monday. We need to match claims against IBRA's list."

He said depositors should look for a special sign at BNI branches indicating they were handling funds from the frozen banks. "We, too, hope that they will keep their money at BNI, so that the funds return to the banking system."

Fuad described the decision as a "win-win situation" because depositors automatically became customers of Bank BNI.

He said there was no need for depositors of the seven banks whose management had been taken over to rush to get their money out either. "If anything, their money is even safer now under IBRA's management," he said.

Fuad said the government would foot the bills of the suspensions and management takeovers, but he declined to state the total amount involved.

"We want to stress to all bank depositors that they should remain calm. You should not lose sleep over this, just go about your weekend as planned. Don't let it disrupt you.

"Don't panic and don't listen to rumors and gossip.

"The government is not going to freeze your funds or turn your deposits or savings into bonds," Fuad said. (08/emb)