Are Potential Banks Bankrupt? This is the explanation of LPS



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LPS provides data and facts related to the current condition of the banking industry

REPUBLIKA.CO.ID, By: Novita Intan, Citra Listya Rini

Suddenly, there is news that there are eight banks experiencing (failed) problems in the midst of the corona virus outbreak. The possibility of this bank failure is called to occur if the economic situation worsens or contracts.

This economic contraction means economic growth minus the alias below zero percent. This contraction scenario was broadcast by various state officials.

The banking industry is one of those experiencing severe and intense pressure from the economic impact of this coronavirus outbreak. Liquidity risk, bad credit risk and financing risk are crucial issues in today’s banking industry.

However, the Indonesian Deposit Insurance Corporation (LPS) guarantees that banking conditions are generally stable amid the spread of the corona virus. This can be seen in various indicators of the banking industry as of February 2020.

LPS Secretary Muhammad Yusron said his office had cleared a series of reports saying that eight banks had the potential to fail.

“In connection with the appearance of news that there are eight banks that have the potential for bankruptcy, we want to emphasize that the news is not true,” he said in a statement written in Jakarta on Friday (4/10).

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Yusron detailed, several indicators of the stability of the banking industry as of February 2020, including the level of bank capital reached 22.27 percent and the liquidity condition was relatively adequate, with a loan / deposit ratio (LDR) of 91 , 76 percent.

“Some banks have lower LDRs, especially BUKU I and BUKU II, which are at the 81 percent to 82 percent level,” Yusron said.

Other default risk indicators (gross NPL) were found to be stable at 2.79 percent with a ROA of 2.46 percent. In addition, deposits also continued to show year-on-year (year-on-year) growth of 9.79 percent and the average trend in bank industry deposit rates that held at 5.50 percent.

“LPS regularly creates scenarios that aim to test the suitability of LPS funds in performing their duties to secure customer deposits and bank resolutions,” Yusron said.

Meanwhile, the intermediation performance of financial services institutions in February 2020 moved in line with the evolution of the national economy.

The OJK data also showed that bank credit registered a positive growth of 5.93% year-on-year, backed by investment loans that continued to grow in double digits at the level of 10.29% year-on-year. The finance company’s financial accounts receivable increased 2.82% yoy.

Amid intermediary growth in financial services institutions, the risk profile still remains with a gross NPL ratio of 2.79% (net NPL: 1.00%) and an NPF ratio of 2.66%.

In terms of fundraising, third-party bank funds (DPK) grew by 6.80% year-on-year, more than the growth in credit. In addition, throughout February 2020, the insurance industry managed to collect premiums of Rp46.5 billion and grew by 4.73% year-on-year.

Bank exchange rate risk is at a low level in February 2020, with a net open position ratio (NOP) of 2.35%, well below the regulatory threshold of 20%.

Bank liquidity and capital are at an adequate level. The liquidity coverage ratio and the liquid / non-basic deposit ratio are 212.30% and 108.12%, respectively, well above the threshold of 100% and 50%, respectively.

The capital of financial services institutions remains stable at a high level. Bank capital adequacy ratio of 22.42%.

In a normal situation, the scenario used by LPS is to manage a small bank, a large medium bank, and five rural banks. In an abnormal situation, LPS’s financing capacity is currently capable of handling four to five small banks and some medium-sized banks.

LPS funding is insufficient under Article 20 paragraph (1) letter b jo Article 24 paragraph (1) Perpu Number 1 of 2020, LPS may make / receive sales / SBN repository owned by LPS to Bank Indonesia, issuance of debt securities , loans to other parties, and / or loans to the government.

Bhima Yudhistiran Adhinegara, an economist at the Institute for the Development of Economy and Finance (INDEF), added that currently the problems facing the banking industry are related to the suspension of credit installments. Because technically on the ground with many government statements that are out of sync.

“Naturally, debtors and bank or leasing managers are also confused. Also, in the current condition, OJK should release all contributions for distressed banks,” he said.

Bhima also highlighted a number of indicators from the banking industry that need to be taken into account, such as the slowdown in credit growth. As of February 2020, total credit growth was 5.5 percent. The growth rate of consumer credit fell by 6.1 percent.

In terms of investment credit, it has also started to level off at 10 percent and working capital loans have dropped sharply to 2.6 percent year-on-year. That is, several bank indicators indicate a strong weakening compared to 2019.

As of February 2019, credit growth was 12 percent yoy and investment credit at the time was still quite positive at 13.4 percent and consumer credit grew 9.5 percent.

If viewed from the banking side, PT Bank Mandiri (Persero) Tbk will review the previous loan growth target of eight percent to 10 percent. The review will be included in the Bank’s Business Plan (RBB) this year.

Banco Mandiri chief executive officer Royke Tumilaar said the company would review the loans according to conditions of economic growth due to the corona virus. “If we increase the credit, of course we will review it in the future. We see the current conditions,” he said.

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