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December 1, 2008

Indonesia urges banks to share central bank’s burden
Indonesia Vice President Jusuf Kalla urged Friday that the central bank and bank owners should share the burden to ensure that the country's banking sector is run properly, reported the Jakarta Post.

"The government has recently raised its deposit guarantee limit to 2 billion rupiah from 100 million rupiah. This is a huge risk that we are taking. Bank Indonesia (BI) and bank owners must share the burden as well," said Kalla at his office.

"They (BI and the bank owners) should not simply pass the responsibilities to fix an ailing bank onto the government alone. This is unfair because the taxpayers have to pay the cost eventually," he added.

Kalla was responding to the recent fiasco in Bank Century, which was taken over by the government at BI's request after the bank's capital adequacy ratio (CAR) plunged to negative 2.3 percent from around 18 percent in September.

The government, via the LPS, provided Rp 2 trillion (US$173 million) to keep Century afloat, Rp 1 trillion of which was channeled to the bank Monday.

BI and the government have attributed the mess in Century to the failure by the bank's management and shareholders to uphold the principles of prudent banking and accountability.

Century founder and shareholder Robert Tantular has been detained by the National Police on Tuesday for an alleged breach of banking regulations, which is punishable by a minimum of seven years and a maximum of 15 years imprisonment.

"Bank owners who fail to comply with the regulations, like those the owners of Century, should live with the consequences."

"We are now imposing firm action (on violators of banking regulations). If they are making violations we will detain and prosecute them. This is to show other bank owners not to mess around with the regulations," said Kalla.

Lawmakers and analysts blamed BI for compromising too much with Century despite several earlier incidents that should have forced BI to close down the bank. Under the central bank law, banking supervision falls under the responsibility of BI.

However, the government is taking on the burden of fixing an ailing bank when BI fails to keep the bank afloat through its supervision measures. Century poses an example of BI's weak supervision in the past.

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