:: Surveillance Strategy of Bank Indonesia
In performing its supervisory function, Bank Indonesia has set three supervisory classifications based on the evaluation of a particular bank. The categories are as follows:
Bank Indonesia also supervisesbanks in recovery (BDP), and monitors the liability settlement of frozen banks (BBKU), and liquidated banks (BDL) set by prevailing regulations.
:: Surveillance Approach of Bank Indonesia
The surveillance approach adopted by Bank Indonesia is split into two activities, namely off-site supervision and on-site examination. Off-site supervision constitutes supervision and analysis based on regulatory reports submitted by a bank, information in the form of other communications, as well as information from third parties. Meanwhile, on-site examination is performed by investigation and evaluating a bank’s compliance toprevailing regulations. Both approaches include detailed analyses of a bank’s current condition and are forward looking.
:: Routine Supervision
All banks are subject to routine supervision. Generally, the frequency of such supervision is on an annual basis.
Banks suffering a potential threat to their business activity are placed under intensive supervision. The measures taken by Bank Indonesia against abank under intensive supervision are as follows:
A bank subject toIntensive Supervision that does not improve in terms of itsfinancial condition and management, or if analysis by Bank Indonesia finds that a bank’s business activity is under threat, then such a bank will beplaced under Special Supervision status.As required, the intensity of direct examination may escalate, especially in terms of assessing performance based on existing commitments and the work plan submitted by the bank’s management to Bank Indonesia.
:: Special Surveillance
Special surveillance is applicabletoa bank that does not meet the minimum requirements. The measures available to Bank Indonesia under these circumstances are as follows:
Restrictions and limitations for banks under special surveillance include:
Apart from the limitations listed above, Bank Indonesia will also post a list of banks under special surveillance on Bank Indonesia’s website. In contrast, in the interest of balanced public information,Bank Indonesia will publicly announce any bank removed from special surveillance status.
The maximum period of time a bank may be placed under special surveillance is three months for banks not listed on the capital market and six months for listed banks. The time period may be extended but only once and for no more than three months. Extensionsare normally granted due to the necessary legal processes, for examplebudgetary alterations, transfer of ownership, the license process and due diligence.
Generally the frequency and intensity of surveillance and assessment will escalate in order to monitor performance and bank commitment as well as its liabilities as instructed by Bank Indonesia. Based on such analysis and surveillance, if a bank’s condition is found to deterioratethe bank will be placed under the auspices of IBRA with two alternative status options:Banks in Recovery or Frozen Banks.
:: Banks in Recovery (BDP)
Banks can be assigned this status should such a bank be deemed recoverable, especially in terms of its capital. During the recovery process administrated by IBRA, communications and collaboration between Bank Indonesia and IBRA are intensive, particularly regarding the development of primary performance indicators, namely capital, the liquidity ratio (reserve requirement), non-performing loans, prudential regulations (BMPK, PDN, PPAP), and work plan achievements. If conditions improve sufficiently and the recovery program is completed and deemed successful, then BDP status is revoked and the bank is reassigned to Bank Indonesia for furthersurveillance. In contrast, if the bank’s condition deteriorates then its status can be downgraded to Frozen.
:: Frozen Bank
A bank’s business activity is frozen should it fail to successfully complete the IBRA recovery processwithin an agreed time frame. Once IBRA has finished finalizing a frozen bank, the business license of said bank would be revoked, followed by the annulment of the legal institution, and finally liquidation.