Indonesia’s Deposit Insurance Agency will put up Rp 1.5 trillion ($133 million) by Monday to help Bank Mutiara stay afloat and cover bad loans.
Bank Mutiara — formerly called Bank Century — has been under the control of the agency known as the LPS since the government’s controversial Rp 6.7 trillion bailout of Century in 2008.
The latest installment will bring total capital infusion to Rp 8.2 trillion, which is unlikely to be recovered when the LPS needs to divest its stake in the lender to strategic investors at any price next year.
The LPS is charged with guaranteeing customers’ deposits in the country’s lenders and provides financial support to maintain stability in the financial system.
Samsu Adi Nugroho, the LPS secretary and spokesman, said the agency needed to inject more capital into Bank Mutiara as the lender’s capital adequacy ratio had fallen bellow the minimum 14 percent required by the central bank.
Bank Indonesia requires the soundest banks to set aside at least 8 percent of their total risk-weighted assets as capital. Weaker ones, such as Bank Mutiara, have to set aside 14 percent. The higher CAR ratio reflects the higher risk.
“By Monday we [can] ensure that the transfer to Bank Mutiara will be completed,” Samsu said. “It’s Rp 1.5 trillion.”
He said the LPS would use premiums the agency had collected from domestic banks and was acting on the mandates set out under the 2004 LPS Law.
“There is no obligation to ask [for funds or approval] from the House of Representatives,” Samsu said, adding it was the LPS’s decision to add capital late on Thursday.
However, earlier this week the LPS sent a letter to the House asking for consultation, said Harry Azhar Azis, deputy chairman of House Commission XI, which oversees finance and banking.
“But we refused, noting that there are no rules that allow for the LPS to consult with the House. We think that the LPS already has the mandate necessary for taking action,” Harry said.
The central bank has written a notification to LPS to increase Mutiara’s capital by Rp 1.5 trillion.
Rudy Siregar, the LPS deputy for law and advocation, said that the agency’s decision was meant to send a signal to the banking sector that it was ready to take necessary actions.
“This will show the banking sector that the LPS, which was established to maintain financial system stability, has done its job,” Rudy said.
Hikmahanto Juwana, a law professor at the University of Indonesia, backed the LPS’s move and said, “All parties have to focus on what is mandated by the LPS law” before criticizing it.
The government has been seeking to sell its 99.9 percent stake in Mutiara, but it has found no suitors so far.
Observers in Jakarta say that the ill-managed Mutiara is not up for sale.
Under the 2004 law, the LPS must sell all shares of any bank it rescues within five years at the price of the bailout. Since the five-year deadline ended in November, that means Mutiara is now open to any bidder with the highest offer.