financialtreat – will explain about Banks Systems Under Special Surveillance (Special Surveillance) which you will get in the following article. let’s look at this article carefully!
The national banking restructuring program has been carried out through steps including the establishment of the National Bank Restructuring Agency (IBRA), the Government guarantee program, the bank recapitalization program and several other banking systems.
In its development, there are still banks that are considered to be experiencing difficulties that can endanger the continuity of their business and or the national banking platform. Therefore, the banking systems is here to provide solutions in doing business.
Banking Systems under Special Surveillance (Special Surveillance)
In this regard, the Bank in question needs to take exclusive steps such as intensive supervision and special supervision, so that a sound banking platform can be created effectively.
For Banks that still have the prospect of becoming healthy, it is necessary to take corrective and rehabilitative steps or for Banks that are no longer possible to be rehabilitated, it is necessary to take steps to resolve them in the banking systems.
Therefore, it is necessary to define requirements and criteria that are aware and transparent regarding the level of difficulty of the Bank in its business activities, as well as the coordination steps and procedures required in the framework of the application of national banking restructuring.
Coordination steps between Bank Indonesia and IBRA in the context of restructuring the national banking systems are, among others, stated in the Joint Agreement between the Governor of Bank Indonesia and the Chairperson of IBRA.
In accordance with the banking recapitalization program, at the end of the year, banks are required to meet a minimum capital adequacy ratio equal to or greater than 8 percent (eight percent).
Supervision Tactics by Bank Indonesia
In carrying out its supervisory duties, Bank Indonesia has established several supervisory models based on an analysis of the situation of an exclusive bank, namely:
- Normal Monitoring (Regular)
- Intensive Supervision (Intensive Supervision)
- Special Surveillance (Special Surveillance)
In practice, Bank Indonesia also continues to supervise Banks in Restructuring (BDP), and monitors the settlement of liabilities from Frozen Banks for Business Activities (BBKU), as well as Banks in Liquidation (BDL) as stipulated by applicable laws and regulations.
Supervision Approach by Banks Systems Indonesia
In carrying out the supervision tactics mentioned above, the supervisory approach is divided into two types of activities, namely indirect supervision (Off site supervision) and direct supervision (On site examination).
In summary, indirect supervision is an act of supervision and analysis carried out based on periodic reports (Regulatory reports) submitted by the Bank, news in other forms of communication and also news from other parties.
At that time, direct supervision was carrie out by conducting inspections on the Bank to examine and evaluate the Bank’s level of compliance with applicable regulations. Include in the two types of supervisory approaches mentione above are analysis of the Bank’s condition, currently and in the future (Forward looking).
This supervision is carrie out at Banks that meet the criteria of not having the potential or not endangering their business continuity. Generally, the frequency of supervision and monitoring of the Bank’s atmosphere is carrie out normally, while inspections of this type of Bank are carrie out periodically or at least once a year.
This intensive supervision is carrie out by an adequate Bank that has the potential for difficulties that can endanger the continuity of its business. The steps taken by Bank Indonesia on Banks with Intensive Supervision standing, among others:
Requesting the Bank to report exclusive matters to Bank Indonesia.
- Increase the frequency of updates and evaluate work plans with adjustments to the targets to be achieve.
- Requesting the Bank to prepare an action plan according to the problems encountere.
- Placing Bank Indonesia supervisors and or examiners at the Bank, if necessary.
For a Bank under Intensive Supervision that does not result in an improvement in its financial and managerial situation and base on Bank Indonesia’s analysis it is known that the Bank can be classifie as a Bank that has difficulties that could endanger its business continuity.
Then the Bank is subsequently designate as a Bank with Special Supervision standing. In addition, if necessary, the intensity of direct inspections at the Bank generally increases, especially in the context of monitoring performance growth base on the commitments and improvement plans submitte by the Bank’s management to Bank Indonesia.
Supervision of banks that are considere to be experiencing difficulties that endanger their business continuity. For Banks with this Special Supervision standing, several actions by Bank Indonesia have been take, including:
- Order the Bank and or the Bank’s shareholders to submit a written capital restoration plan to Bank Indonesia.
- Instruct the Bank to fulfill the obligation to carry out corrective actions (Mandatory supervisory actions).
- Ordering the Bank and or the Bank’s shareholders to take actions, including but not limite to:
- replace the board of commissioners and or directors of the Bank;
- write off credit or financing base on Sharia Principles classifie as non-performing and take into account the Bank’s losses with the Bank’s capital;
- perform a merger or consolidation with other banks;
- sell the Bank to a buyer who is willing to take over all the obligations of the Bank;
- hand over the management of all or part of the Bank’s activities to other parties;
- sell part or all of the assets and or liabilities of the Bank to another bank or party; and or
- freeze the activities of the Bank’s exclusive business.
- As for the embargoes and restrictions for Banks under Special Supervision, among others:
- Banks are prohibite from making capital distribution payments (dividend distribution or incentive protection);
- Banks are prohibite from conducting transactions with relate parties or other parties determine by Bank Indonesia;
- Banks are subject to asset development restrictions
- Banks are prohibite from making payments on subordinate loans
Banks are subject to compensatory restrictions to parties regarding Not only the require corrective actions for Banks, Bank Indonesia is also Banks that have been designate with Bank status in Special Supervision on the Bank Indonesia homepage.
On the other hand, in the context of news equilibrium to the public, if the condition of the Bank improves and is not categorize as a Bank under Special Supervision, Bank Indonesia will also announce it.
The term of a Bank with Special Supervision standing is a maximum of three months for Banks that are not registere on the Capital Market or six months for Banks that are registere on the Capital Market (Liste Banks). The period can be extende and an extension can be grante a maximum of one time and a maximum of three months.
The consideration of the extension is mainly relate to the legal process require, including amendments to the articles of association, transfer of ownership rights, licensing process, and due diligence process by new investors.
In general, the frequency and intensity of supervision and inspection has increase, especially in the context of monitoring the growth of performance and commitments as well as the obligations of the Bank as instructe by Bank Indonesia.
Furthermore, base on the say analysis and monitoring, if it is know that the Bank’s situation is deteriorating, then there are two alternative resolutions for the say Bank, namely the Bank is submitte to IBRA with the status of Bank in Restructuring (Bdp) or Frozen Bank in Busyness in Business.
Bank in Restructuring
Banks can be designate with the status of Bank Under Restructuring if the Bank is considere to still have the potential to be improve, especially from the capital aspect. During the Bank restructuring process by IBRA, communication and cooperation between Bank Indonesia and IBRA.
Intensively carrie out, especially those relate to the growth of the Bank’s main performance indicators, including capital performance, liquidity ratios (Require Minimum Requirements), non-performing loans, prudential provisions (LLL, PDN, PPAP), and indications of achievement of work plans.
If the situation improves and the restructuring program has been complete or is declare successful, the BDP standing is revoke and the Bank is hande back to Bank Indonesia for the necessary supervision. On the other hand, if the Bank’s situation worsens, the BDP’s standing may change to a Business Activity Frozen Bank.
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Bank Frozen Business Activity
Banks are designate with the status of Frozen Bank Business Activities if the Bank meets the requirements that the Bank’s situation has deteriorate very sharply or the IBRA’s restructuring program for Banks in Restructuring (BDP) cannot be complete by the Bank within the agree timeframe or base on Bppn’s consideration, the restructuring program cannot be carrie out although the agree time period has not been exceede.
Furthermore, in the event that IBRA has complete carrying out the necessary steps for the settlement of the Bank with BBKU standing, the next settlement is carrie out in the stages of revocation of business licenses, dissolution of legal entities, and also liquidation of the Bank.
Well, those are some reviews of the banking systems that you need to know, hopefully this article will be useful for you, thank you.