Page 6 - Perpustakaan Lemhannas RI

Dealing with Problem Banks
1. Supervisors’ ability to deal with problem banks effectively and expeditiously is

still lacking.
2. Legislated PCA requirements have been enacted in a number of countries as a

way to limit supervisory discretion and quickly contain problems.
3. Presently, problem banks in Indonesia can only be placed into special

surveillance contingent on a number of subjective factors.
4. Consequently there is a need to tighten the rules regarding the supervision of

troubled banks to achieve timely corrective measures and to remove some
discretion from the process.

Basel II
1. Bl plans to commence Basel II implementation for all commercial banks over a

five year period.
2. It is important to carefully handle the transition to Basel II.
3. Against this backdrop, the FSAP recommends that banks be required to

maintain capital adequacy in line with the Basel I norms until Pillars 2 and 3 of
the Basel II framework are operational.

Deposit Insurance
1. Indonesia has a deposit insurance regime that is in line with international

practice.
2. LPS’s approach would benefit from establishing a market-based ceiling rate on

insured deposits.
3. The cooperation between Bl and the LPS could be improved.
4. With the twenty-fold increase in coverage last year, the ratio of the fund’s

resources to the insured deposit base has declined substantially.

Main findings
Bank regulation and supervision has improved significantly since the late
1990s.
1. Objectives, independence, powers, transparency, and cooperation

(principle 1).
Bl has independence and sufficient powers to ensure compliance with laws,
regulations, prudential standards and guidance. However, two important
weaknesses were identified:
• Bl and its staff lack the necessary legal protection against prosecution
• The lack of appropriate gateways for information exchanges with domestic

and foreign supervisory authorities is a serious impediment to Bl discharging
its legal responsibilities of regulating and supervising the banking system.
• The inability to have free exchange of information prevents the Bl from
forming a view on whether the conditions in other domestic financially related
sectors are having a serious impact on the banking sector and whether
examination and supervisory priorities may need to be altered.

2. Licensing and structure (principles 2 to 5).
• Although Bl has been designated as the licensing authority under the law, and
it has the authority to set the licensing criteria, there has been no application
for a banking license since 1999.