Bank Mandiri posted a 49 percent jump in net profit last year. (Reuters Photo/Beawiharta)

Indonesia's Big Banks Told to Submit Plans for Coping With a Crisis

FEBRUARY 22, 2017

Jakarta. Indonesia's biggest banks must write up plans for recovering from potential insolvency, a measure to ensure that authorities do not have to bail them out, the chairman of the banking regulator said on Wednesday (22/02).

Muliaman Hadad, chairman of the Financial Services Authority (OJK) told a parliamentary hearing that all "systemically important banks" — which he did not define — had to file internal recovery plans to his agency by year-end.

He declined a request to provide a list of what banks are deemed "systemically important".

For the banks approached to submit recovery plans, their chief executive, main commissioner and controlling shareholder must sign the document to show their commitment to it, Muliaman said.

"Shareholders must participate as early as possible in all problems that may arise," Hadad said, adding that there should be a recovery task force set up in every big bank.

Indonesia's parliament last year passed a law that lays out rigid, step-by-step protocols on how authorities should handle a financial crisis.

The law does not allow the use of state budget as a potential source of support for a troubled bank, although it gives authority to the president to make a decision on a bank rescue in times of crisis.

Big banks in Southeast Asia largest economy are already required to set aside more capital under an OJK regulation for a "capital surcharge", the size of which depends on how important the institutions are judged.

Indonesia's biggest banks by assets are Bank Mandiri , Bank Rakyat Indonesia, Bank Negara Indonesia, which are state-controlled, and Bank Central Asia.

The banking industry has sound capital levels with average capital adequacy ratio of 22.7 percent as of December, but some banks have been facing rising bad debts.

During and after the 1997/98 Asian financial crisis, Indonesian authorities took over scores of collapsing banks, many of which were shut and others merged into new or surviving institutions.

At the end of 2016, Indonesia had 116 banks, including sharia ones. In December 1996, there were 239 commercial banks.