Govt Takes Over Control Of Bank, First Since ‘98 Crisis

Source: The Jakarta Post (21-11-2008)

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Sat, 11/22/2008 8:44 AM  |  Headlines

The government has taken control of troubled Bank Century, the first such move since the 1997-1998 crisis, to save it from collapse and restore confidence in the banking sector troubled by rumors that several small banks are short of liquidity.

The central bank said the lender had previously faced a liquidity problem, including when it failed to settle on time a Rp 5 billion clearing obligation more than a week ago, but was able to handle the problem by itself.

However, with Century facing more pressure, Bank Indonesia decided to intervene in a bid to boost customer confidence in the bank, BI Governor Boediono said at a media briefing Friday.

"The (overall) banking sector condition is good and solid. We decided the Deposit Insurance Corporation (LPS) should take over (the bank's management) to ensure its depositors are safe," Boediono said.

Century closed Friday but will resume operations next Monday, despite an overhaul in its management that was carried out by  the LPS. BI earlier put the lender under a so-called special surveillance program.

Century, formed in December 2004 through the merger of Bank CIC, Bank Pikko and Bank Danpac, is Indonesia's 13th largest lender by assets, with Rp 15.2 trillion (US$1.24 billion) in assets as of Sept. 30 this year.

The LPS has begun overhauling the bank's management, appointing Maryono of Bank Mandiri, Indonesia's largest lender by assets, as interim president director, LPS chairman Rudjito said.

He added the LPS took over Century after the bank's capital adequacy ratio (CAR) dropped due to an assets deterioration, forcing the bank to allocate provisions that reduced its CAR.

The LPS has three years in which to restructure the bank by providing temporary capital, Rudjito said.

"A temporary capital injection can be given only within three years. If the bank can't be sold 
by that time, it can be extended twice a year."

PT Sinar Mas Multiartha, owner of Bank Sinarmas, which has sought to acquire a 70 percent stake in Century, said the company was conducting due diligence.

"We have not canceled our plan (despite the takeover)," Sinar Mas director Gandhi Sulistyanto said Friday.

Because of the takeover, the Indonesia Stock Exchange (IDX) suspended trading in Century's shares on Friday.

Boediono insisted the Century case was an isolated one and was not representative of the country's banking sector condition.

On Nov. 13, Century failed to pay Rp 5 billion on time to BI's clear-
ing system after a branch in Sumatra was late in channeling its 
cash. The bank resumed operations a day later.

What BI can do after putting Century under special surveillance

1. Order shareholders to submit a capital restoration plan.
2. Order Century to carry out mandatory supervisory actions.
3. Order Century or its shareholders to: a. Replace its board of commissioners or directors; b. Erase bad lending and calculate losses to the capital; c. Merge or consolidate with other banks; d. Sell the bank to a buyer; e. Let other parties manage all or part of management.; f. Sell all or part of the bank's assets or liabilities.; g. Freeze certain of the bank's activities.

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