Unibank closed as CAR drops below zero

Unibank closed as CAR drops below zero

Berni K. Moestafa, The Jakarta Post, Jakarta

Bank Indonesia closed on Monday the publicly listed PT
Unibank, after days of massive runs against the bank had plunged
its capital adequacy ratio (CAR) into negative territory.

Bank Indonesia Senior Deputy Governor, Anwar Nasution, said
the Indonesian Bank Restructuring Agency (IBRA) would take over
Unibank to handle its closure.

"As of October 29, 2001, Bank Indonesia has placed the bank
under suspension and has surrendered PT Unibank to IBRA," Anwar
said in a press meeting.

He said Unibank's closure would also require the government to
call in its blanket guarantee scheme to cover the bank's third
party funding.

IBRA would be in charge of resolving the bank's liability
through this state guarantee scheme, he said.

He said Unibank owned third party liabilities of some Rp 3.1
trillion (about US$302.14 million), which would roughly represent
the amount the government must cover.

IBRA would also attempt to recoup from the bank's owners the
public money used under the blanket guarantee, and ensure that
Unibank's employees obtained their rights.

"The rights and authority of the bank's management,
shareholders, including that of its shareholders' meetings, are
herewith transferred to IBRA," Anwar explained.

He called on clients of Unibank to remain calm, saying their
accounts were safe under the state blanket guarantee scheme.

Clients may withdraw their money at Unibank's branch offices
starting Monday, Nov. 5, he explained.

Unibank has been suffering from a heavy run on deposits, which
reportedly began in Medan last week. On Monday, hundreds of
people in Medan descended on the bank hoping to withdraw their
funds, but it had already been shut down.

Anwar said the heavy run suffered by the bank had plunged its
CAR level into negative territory.

He did not provide details of Unibank's latest CAR position,
but Bank Indonesia regulations require a minimum CAR level of
four percent.

According to Anwar, the small institution's financial troubles
mainly stemmed from its violation of the legal lending limit for
banks.

Unibank had channeled some 51 percent of its loans to
affiliated companies that were unable to repay them, he said.

This compares to 20 percent of a bank's loans allowed under
Bank Indonesia's legal lending limit rule.

Bank Indonesia, he said, had been trying to nurture Unibank
back to health since 1998 when it was placed under special
surveillance by the central bank.

"We gave the bank's management more than enough time when the
bank was under Bank Indonesia's special surveillance period, yet
its financial position kept worsening," he said.

He said the government had intended to close Unibank earlier,
but had lacked the funds for the blanket guarantee scheme.