JAKARTA (TheInsiderStories) - Indonesian President Joko Widodo has issued new rules that allowed the Deposit Insurance Corporation to handling financial system stability issues include supervise cash-strapped banks. It’s stipulated on Government Regulation No.33/2020 and was promulgated on July 7.
Under the new decree, the agency is allowed to assist the Financial Services Authority (FSA) in supervising a bank after the finance regulator puts the bank under an intensive supervision status, reads article 3 paragraph 1 of the regulation.
Furthermore, the agency is allowed to inject cash into such a bank to help the lender handle a liquidity or solvability problem during economic recovery affected by COVID-19, according to article 11 paragraph 1.
The total fund’ placement in all banks is no more than 30 percent of its total assets, funds in one bank are no more than 2.5 percent of the agency’ total assets, and each period funds is no more than one month and can be extended at most five times.
The regulation also allows the deposit insurer to raise cash through several means, including using its holdings of government bonds in repurchase transactions with the central bank, the outright sale of such bonds to the central bank, issuing its own Rupiah or foreign currency bonds and, if necessary, borrowing from the government.
The main jobs of the country deposit insurer before the pandemic were to insure retail deposits and either to liquidate or save a failing bank. It collects fees from commercial banks for its services. But earlier this month President Widodo was considering returning banking regulation to the central bank’ remit, amid concern about how the pandemic is exposing strains in the banking industry.
The FSA has relaxed rules on loan restructuring in a move that prevented the need for banks to prepare sizeable provisions for bad loans and kept the headline non-performing loan ratio relatively low - at 3.01 percent in May. Based on the agency data as of June 29, banks have restructured Rp740.8 trillion (US$52.16 billion) worth of loans for 6.56 million debtors.
Under its regulation No.11/2020 in March, the agency stipulates the debt financing could be restructured by lowering interest rates, extending repayment periods, reducing principal and interest arrears, adding debt or financing facilities or converting debt or financing into temporary equity participation, with the scheme chosen to be decided between the banks and their clients.
FSA chairman Wimboh Santoso said last month in an online hearing with House Representatives’ Commission IV that 7.8 million borrowers with debts amounting to Rp 1.11 quadrillion might apply for the loan-restructuring program.
US$1=Rp14,200
Written by Lexy Nantu, Email: lexynantu@theinsiderstories.com
