July 10, 2020 / 2:52 AM / a month ago

Indonesia expands deposit insurer's role in banking supervision

JAKARTA, July 10 (Reuters) - Indonesia has given the Deposit Insurance Corporation a bigger role in supervising cash-strapped banks under a new regulation issued this week, aimed at beefing up safeguards to limit the risk of the coronavirus pandemic causing a financial crisis.

Southeast Asia’s largest economy has since late March tweaked crisis management rules to try to prevent the current health and economic crises caused by the pandemic spreading to the financial system.

Under the new decree, the Indonesia Deposit Insurance Corporation (LPS) is allowed to assist the Financial Services Authority (OJK) in supervising a bank after OJK puts the bank under an “intensive supervision” status.

LPS is allowed to inject cash into such a bank to help the lender handle a liquidity or solvability problem.

The decree was signed by the president on Tuesday and was made public on Thursday night.

It also allows LPS to raise cash through several means, including using its holdings of government bonds in repurchase transactions with the central bank, outright sale of such bonds to the central bank, issuing its own rupiah or foreign currency bonds and, if necessary, borrowing from the government.

Before the pandemic, LPS’s main jobs were to insure retail deposits and either to liquidate or save a failing bank. It collects fees from commercial banks for its services.

Reuters reported earlier this month President Joko Widodo was considering returning banking regulation to the central bank’s remit, amid concern about how the pandemic is exposing strains in the banking industry.

OJK has relaxed rules on loan restructuring in a move that prevented the need for banks to prepare sizeable provisions for bad loans and kept the headline non-performing loan ratio relatively low - at 3.01% in May.

Based on the OJK data as of June 29, banks have restructured 740.8 trillion rupiah ($51.71 billion) worth of loans for 6.56 milion debtors. ($1 = 14,325.0000 rupiah) (Reporting by Maikel Jefriando and Tabita Diela; Writing by Gayatri Suroyo Editing by Ed Davies)

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