INDONESIA FINANCIAL SECTOR MONTHLY REPORT NO. 44 April 2004

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1 INDONESIA FINANCIAL SECTOR MONTHLY REPORT NO. 44 April 2004 RECENT DEVELOPMENTS: IBRA returned supervision of Bank Danamon, BII and Bank Permata to Bank Indonesia. IBRA recently returned the supervisory task of Bank Danamon, BII and Permata to Bank Indonesia on the grounds that these banks have completed their restructuring programs at IBRA and fulfilled requirements for Bank Indonesia supervision which included reaching a minimum ratio of CAR and reserve requirement of 8% and 5% respectively, improved net non performing loan ratio and showed no violations of regulations on legal lending limit, net open position and provision for productive assets. IBRA previously sold a majority ownership interest in Bank Danamon and BII. With regard to Bank Permata, the bank s shares are now under management of the Perusahaan Pengelola Aset (PPA) which has begun selecting a financial advisor to divest the shares. Government issued bonds with a nominal value of Rp3 trillion. The Ministry of Finance said that the government has held another auction of Government Bonds on 27 April The bonds have a series number of FR0025 with a nominal value of Rp3 trillion and will mature in 7 (seven) years (see Table 1). The government also plans to have another bonds auction for series FR0025 on 25 May 2004 with an indicative nominal amount of Rp3.5 trillion Bank Indonesia issues new regulation on determination of maximum rates on guaranteed deposits. Recently Bank Indonesia issued a new regulation that changed the benchmark for maximum guaranteed rates of Rupiah deposits at commercial banks from JIBOR rate to SBI 3-month rate. The maximum rate will be calculated by adding spread to the benchmark (see Table 2). For foreign exchange deposits, the new regulation stated that the maximum rate is derived from the rate of foreign exchange deposits at a number of selected banks without a spread. Bank Indonesia said that the reason for this change is to correlate better deposit rates to SBI rates. In addition, it is part of BI s efforts to use the SBI 3-month rate as the benchmark of government securities. The old regulation had allowed deposit rates to fall below SBI rates. As a result, banks can receive deposits, buy SBI and still earn a positive margin. With this situation banks do not have the incentive to increase their intermediary function. Government closed IBRA on end April Following the soft-closing of IBRA on 27 February 2004, a small team consisting of 130 staff was formed to handle left over administrative work. This team completed its duty on 30 April 2004 and hence on that date the government officially closed IBRA. A statement from the Coordinating Ministry for Economic Affairs provided a number of updates and achievements as follows: Monthly Report April 2004 Page 1 of 6

2 (1) The closing of 52 frozen banks. IBRA had submitted recommendation for the closure of these banks to Bank Indonesia. Subsequently Bank Indonesia in April, formally revoked the licenses of 50 of these banks. The remaining two banks will have their licenses revoked in the near future. It is also reported that settlement of asses of these banks yielded Rp31.8 trillion which then was used to pay: (i) tax liabilities (Rp377.6 billion); (ii) deposit guarantee, BLBI and other expenses (Rp30.5 trillion); (ii) liability to BI (Rp762.3 billion) and (iv) claim of other creditors (Rp 10.6 billion). (2) Settlement of banks shareholders obligation (PKPS). IBRA in total provided a certificate of full payment to 22 of a total of 40 PKPS obligors, including 1 additional obligor (see Table 3). These include (i) all of MSAA obligors, (ii) 17 of APU obligors. The remaining 8 (eight) obligors case will be transferred to the settlement team for continuation of payment and legal actions. These includes 2 (two) MRNIA obligors and 5 APU obligors. The list excluded 2 (two) MRNIA obligors whose debt had been sold earlier by IBRA and 8 (eight) APU obligors whose cases had been transferred to the police for legal enforcement. (3) Ongoing reports and audits. There are 3 (three) ongoing reports which consist of (i) financial report for the period ending 31 December 2003, 27 February 2004 and 30 April 2004, (ii) report of verification of remaining asset and audit report from the Supreme Audit Board (BPK). (4) Settlement of pending transactions. IBRA had completed most of the pending transactions. From a total of 556 transactions with value of Rp5.6 trillion on 27 February 2004 had been reduced to 7 transactions with value of 1.2 trillion on 30 April 2004 (see Table 4) (5) Total collection for IBRA had contributed Rp11.5 trillion in 2004 or exceeded its target of Rp5 trillion. In total, from the year 1999 IBRA transferred Rp141.3 trillion to the government (see Table 5) BI revoked licenses and closed operations of 2 (two) commercial banks. Bank Indonesia on 8 April 2004 revoked operating licenses of two small-size private national banks namely Bank Dagang Bali (BDB) and Bank Asiatic. Consequently these banks had to stop all of their business activities immediately. In its official statement Bank Indonesia stated that the reason for the revocation was the unresolved problems in the banks solvency and liquidity positions as indicated by a sharp decline of minimum capital ratio (CAR) and reserves requirement. Bank Indonesia also said that revocation of license was the last option and prior to that it had required the shareholders of these banks to restore capital, improve the quality of productive assets, resolve indications of fictitious lending and transactions and replace management as a follow up of the fit and proper test. BDB and Asiatic are small banks in the Indonesian banking system (see Table 6), and thus there was no systemic risk from the closure of these banks. Bank Indonesia s new regulations on evaluation of commercial banks healthiness. Bank Indonesia recently announced a new regulation that improves the method of Monthly Report April 2004 Page 2 of 6

3 evaluation of commercial banks healthiness. This new regulation will become effective December Bank Indonesia will use 6 (six) factors i.e. capital, asset quality, management, earning, liquidity and sensitivity to market risk. Under the new regulation, Bank Indonesia will require each bank to conduct a self assessment every quarter (December, March, June and September) and submit them to Bank Indonesia for review. Bank Indonesia will require management of banks to provide action plans to take corrective measures if banks score unsatisfactorily. Bank Indonesia and MoF signed MOU on handling troubled banks. The Ministry of Finance and Bank Indonesia on 17 April signed a Memorandum of Understanding on how to handle banks that experience financial difficulty particularly one that has a systemic impact to the banking system. Specifically the MoU covers the issues of (1) the decision making process; (2) the provision of financing facility and (3) the source of financing through the issuance of government securities. It also stipulates coordination of MoF and BI through the establishment of a Coordinating Committee for addressing the process. The MoU is effective retroactively from end of February 2004 and continues until such time as parliament approves of laws of financial safety net. Bank Fraud at Bank Danamon. The management of Bank Danamon said that on 13 April 2004, its internal auditor found a cash loss of Rp33 billion in its Medan Branch. The fraud seems to involve the bank s staffs who were later detained by police. The bank also said that it has recovered Rp14 billion. The case has been reported to Bank Indonesia and the police for further investigation. Bank Danamon s case has added to a series of bank frauds this year which raises concern on the level of operational risk and corporate governance in the banking sector. Jakarta Commercial Court declared PT Prudential Life Insurance bankrupt. On 23 April 2004, the court declared the company bankrupt following a bankruptcy petition filed by the company s former consultant. The decision drew much criticism as the company was financially sound and not insolvent. The company appealed the Jakarta Commercial Court s decision to the Supreme. This case is similar to the Manulife case which showed weakness in the current bankruptcy law. The government has submitted a revision of the bankruptcy law to the parliament but it is not yet approved. Table 1: Result of Gov t Bonds Auction Auction Date Series No 27-Apr-04 FR00025 Nominal Rp 3.0 trillion Lowest yield 10.50% Highest yield 10.78% Average yield 10.72% Coupon 10.00% Issuance date 29-Apr-04 Monthly Report April 2004 Page 3 of 6

4 Maturity date Coupon date 15-Oct Apr & 15 Oct Bid to cover ratio 3.31 Source: Ministry of Finance Table 2: Maximum Rp Deposit Rates Tenor Spread (bps) 1 month 0 3 months 5 6 months months months 55 Source: Bank Indonesia Table 3: Final Status of IBRA s PKPS Obligors Received SKL Agreement Banks 1 Ibrahim Risjad MSAA Bank Risjad Salim Internasional 2 Sudwikatmono MSAA Bank Surya 3 Soedono Salim MSAA Bank Central Asia 4 Mohammad Hasan MSAA Bank Umum Nasional 5 Sjamsul Nursalim MSAA BDNI 1 The Ning King APU Bank Danahutama 2 Hendra Liem APU Bank Budi Internasional 3 Siti Rukmana APU Bank Yakin Makmur 4 Andi Sardjito APU Bank Baja Internasional 5 The Ning Khong APU Bank Baja Internasional 6 Suparno Adijanto APU Bank Bumi Raya Utama 7 Mulianto Tanaga & Hadi Tanaga APU Bank Indotrade 8 Iwan Suhardiman APU Bank Tamara 9 Philip S. Widjaja APU Bank Mashill 10 Ganda Eka Handria APU Bank Sanho 11 Husodo Angkosubroto APU Bank Sewu Internasional 12 Nirwan D. Bakrie APU Bank Nusa Nasional 13 The Tje Min APU Bank Hastin 14 Hasjim Djojohadikusumo APU Bank Papan Sejahtera 15 Nyoo Kok Kiong APU Bank Papan Sejahtera 16 Honggo Wendratmo APU Bank Papan Sejahtera 17 Hasjim Djojohadikusumo APU Bank Istismarat Transferred to Settlement Team Agreement Banks 1 Kaharuddin Ongko MRNIA Bank Umum Nasional 2 Samadikun Hartono MRNIA Bank Modern 3 Atang Latief APU Bank Indonesia Raya Monthly Report April 2004 Page 4 of 6

5 4 Adisaputra Januardy & James Januardy APU Bank Namura Yasonta 5 Ulung Bursa APU Bank Lautan Berlian 6 Lidia Muchtar APU Bank Tamara 7 Omar Putihrai APU Bank Tamara 8 Marimutu Sinivasan APU Bank Putera Multikarsa Already handled by Police Agreement Banks 1 Santoso Sumali APU Bank Metropolitan 2 Fadel Muhammad APU Bank Intan 3 Baringin Panggabean & Joseph Januardy APU Bank Namura Internusa 4 Santoso Sumali APU Bank Bahari 5 Trijono Gondokusumo APU Bank Putera Multikarsa 6 Hengky Wijaya & Tony Tanjung APU Bank Tata 7 I Gde Dermawan & Made Sudiarta APU Bank Aken 8 Tarunojoyo Nusa & David Nusa Widjaja APU Bank Umum Servitia P-notes has been sold Agreement Banks 1 Usman Admajaja MRNIA Bank Danamon 2 Hokiarto & Hokianto MRNIA Bank Hokindo Source: Coordinating Ministry for Economic Affairs Table 4: Settlement of IBRA s Pending Transactions Type of Positions as of Assets 27-Feb Apr-04 # Transaction Value (Rp bn) # Transaction Value (Rp bn) Property Loan 221 1, Investment 13 3, Strategic Marketable securities Under Refund process Source: Coordinating Ministry for Economic Affairs Table 5: IBRA Collection (Rp trillion) Year Target Actual Achievement 1999/ % % % % % % Total % Source: Coordinating Ministry for Economic Affairs Monthly Report April 2004 Page 5 of 6

6 Table 6: Financial accounts and Ratios of BDB and Bank Asiatic (Rp billion) % of the sector BDB Asiactic Sector BDB Asiatic Asset 1,853 1,723 1,130, Deposits 1,573 1, , Loans , Equity , Profit before tax , Tier 1 capital Tier 2 capital Total capital RWA 934 1, CAR (%) NPL (%) NPA (%) NIM (%) ROA (%) ROE (%) LDR (%) Source: Published financial statements dated 30 September 2003, Bank Indonesia <<<>>> Monthly Report April 2004 Page 6 of 6