Why Indonesia's Banking System Is Unlikely to Be Shaken by Bank Run Rumors


NOVEMBER 21, 2016

Jakarta. Indonesia's banking system is unlikely to be shaken by rumors of a bank run as they have ample short-term liquidity and sound financial performance, economists said.

According to data from the Deposit Insurance Corporation (LPS), which provides a deposit insurance scheme for Indonesian banking customers, the country's more affluent people control the bulk of deposits at commercial lenders.

As of the end of August, third-party funds at commercial banks stood at Rp 4,610 trillion ($345 billion). This includes funds in term deposits, savings, and current accounts.

LPS data show that affluent people – defined as those who have more than Rp 2 billion in their bank accounts – control 55.67 percent of the total third-party funds, while people with less than Rp 2 billion control 44.33 percent of total deposits.

The affluent are not likely to make a run on the banks as they have full confidence in the local banking system, Samuel Asset Management economist Lana Soelistianingsih said.

"People will withdraw their money when they no longer trust the banking system, but [the trust in] ours is currently high and the economic situation is not so bad after all," Lana told the Jakarta Globe.

Messages have widely circulated in social media in recent days, calling on Indonesians to withdraw all their money from banks, either in support of the movement against inactive Jakarta Governor Basuki "Ahok" Tjahaja Purnama, or just as a precaution against political and economic uncertainty in the country.

This is unlikely to affect affluent people, Lana said, as they understand that there are no real risks of a bank run.

Eric Sugandi, an economist at Jakarta-based think-tank the Kenta Institute, quoted data from the Financial Services Authority (OJK) that showed commercial banks' liquid asset ratio – an indicator that measures the liquid assets available for any demand for cash – was 16.49 percent of their total assets at the end of September. He also pointed out that the total assets of the 118 commercial banks operating in Indonesia stood at Rp 6,465.68 trillion on Sept. 30.

"I would say, subjectively, that this is big enough [to prevent a bank run]," he said.

Meanwhile, the loan-to-deposit ratio, used to assess a bank's liquidity by dividing its total loans by its total deposits, stood at 91.71 percent, suggesting that banks still have strong liquidity.

The economists echoed Chief Economic Minister Darmin Nasution and Finance Minister Sri Mulyani Indrawati, who said the country's economic indicators, as well as the banking sector, are solid.