The authority of the Indonesia Deposit Insurance Corporation (LPS) will expand after the Financial Services Authority (OJK) is established. Until recently, the LPS was only authorized to investigate banks that needed special supervision from Bank Indonesia (BI). Now, together with the OJK, the LPS will partially supervise national banking.

Firdaus Djaelani, Executive Director of the LPS,  explained that Law No.21 of 2011 on the Financial Services Authority (OJK Law) allows the LPS to conduct a direct investigation of banks. “Our authority has been expanded. The LPS with the OJK can conduct a direct investigation of a bank,” he said at Commission XI of the House of Representatives, Wednesday (25/1).

Under Law No. 24 of 2004 on the Indonesia Deposit Insurance Corporation (LPS Law), Firdaus explained, the LPS only handles banks that are under BI’s special supervision, for analysis purposes.

Furthermore, he explained that the LPS is preparing the organization for direct involvement in bank investigations and customer protection. “We will improve bank liquidity supervision, human resources, and our IT system,” he emphasized.

The LPS dealt with 46 banks that had total combined assets of IDR 880,89 billion between 22 December 2005 to31 December 2011. Most of these banks were rural banks (Bank Perkreditan Rakyat). The LPS handled 45 rural banks, and one commercial bank.

Firdaus suspects that poor implementation of prudential banking principles is the main reason banks fail and must be liquidated. Another reason is financial manipulation carried out by bank owners. “Bad credit without collateral and weak contracts could also be the reason,” he added.

Bank Mutiara

Meanwhile, some members of the House are questioning the sale of PT Bank Mutiara—previously Bank Century—which has been under LPS ownership for the past three years. Pursuant to the LPS regulation, a bank that has been acquired must be sold within three years.

“After an injection of IDR 6,7 trillion in 2008, why hasn’t the LPS been able to sell the bank?” said Arif Budimanta, a member of Commission XI of the House from the PDIP faction.

Firdaus explained, the LPS has not found an investor that fulfills the administrative requirements in the LPS Law. This was confirmed by Mirza Adityaswara, a member of the LPS board of commissioners.

Mirza said that there were nine potential investors. Three  of the investors confirmed their interest, but none met the requirements for purchase commitment and good financial capability. “The three candidates have sent their broker, but cannot fulfill the requirements,” Mirza said.

On the other hand, Firdaus estimated that Bank Mutiara’s performance improved over the past three years. Third party funds have reached IDR 11,2 trillion; a 119 percent increase from IDR 5,1 billion in 2008. In addition, the capital adequacy ratio (CAR) reached nine percent.

(M Agus Yozami / Mahinda Arkyasa)