Premium Idea Could Lower Bank Costs
Indonesia’s Deposit Insurance Agency said on Tuesday that it wanted to begin imposing a flexible premium based on a bank’s risk on deposits as early as 2014.
Indonesian banks with different levels of risk are currently charged the same premium. The Deposit Insurance Agency (LPS) is prevented by law from performing its own risk assessment of lenders, something that will change in 2014.
The agency currently charges banks a premium of 0.12 percent of their total deposits, regardless of the bank’s risk, which is usually measured by the size of their capital and reserves measured against their bad loans. Indonesian banks pay their premiums twice a year — in January and July. The money is invested by the LPS in government bonds or Bank Indonesia certificates, BI bills.
“We are drawing up the rules and working closely with local banks. They support it,” Mirza Adityaswara, executive director of the agency, told BeritaSatu Media on Tuesday. “Hopefully, it can be implemented in 2014.”
Under the law of the Financial Services Supervisory Authority (OJK), the agency will be granted the right to perform assessments of the country’s lenders. There are 122 commercial banks operating in Indonesia. With the new right, the LPS will be able to determine the risk level of the banks and adjust their premium accordingly.
Mirza likened the country’s commercial banks as “live” and “dead” banks.
“Prior to 2008, it was like the living banks [were supervised] by Bank Indonesia and the bankrupt banks [by] the LPS,” he said.
Following the controversial Rp 6.7 trillion ($710 million) bailout of Bank Century in 2008, Mirza said the central bank started sharing information on banks with the LPS, but the sharing was limited to banks under special surveillance. A bank under special surveillance is usually on the brink of collapse.
Bank Century has been the topic of controversy for the last four years as its problems implicated government and central bank officials. The revived institution, now called Bank Mutiara, is controlled by the LPS. The agency is known to have made several attempts to divest its stake in Bank Mutiara.
“With the OJK taking over banking supervision from the central bank in 2014, we can get all the information on all the banks. That way, we will be able to determine their risks and premiums,” Mirza said.
The LPS, he added, plans to classify the banks into five to seven groups based on their risk level, and charge different premiums for each group.
Bankers and analysts have been pushing for the implementation of a risk-based premium, saying that type of system would be more fair.
Banks that are more prudent in their operations would be charged a lower premium under the new system. Mirza said flexible premiums would discourage banks from taking excessive risks like expanding their loans recklessly.