Indonesia denies stress test shows risk of 8 banks failing

11-Apr-2020 Intellasia | Reuters | 6:02 AM Print This Post

The Indonesia Deposit Insurance Corporation (LPS) denied on Thursday media reports that its stress test had shown eight banks at risk of collapse under the government’s worst-case scenario for the economic impact of the coronavirus outbreak.

LPS Chair Halim Alamsyah told an online briefing there were no indications any Indonesian bank would fail.

“All banking indicators are normal and their fundamentals sound,” said Alamsyah, a former member of the Indonesian central bank’s board of governors.

LPS is a government agency that insures bank deposits and saves failing banks.

Media had cited another LPS executive, Lana Soelistianingsih, telling a hearing with parliament’s financial commission on Thursday about the potential for eight banks to fail.

According to a recording of the meeting on parliament’s official YouTube account, Soelistianingsih said: “We had done a simulated stress test, of which if the severe scenario that the government had anticipated was to happen, we calculate there could potentially be eight banks under our criteria.”

Soelistianingsih added she could not say whether LPS has enough assets to cover for those banks, arguing it would depend on the condition of any bank when it was handed over to the agency by the Financial Services Authority (OJK), which is the regulator for the banking industry.

Alamsyah said the executive’s comments were meant to show how far LPS can cover a failing bank rather making predictions.

Indonesia has recently bolstered its procedures to prevent a financial crisis due to the coronavirus outbreak, including the protocol to help failing banks, in a new emergency regulation.

OJK was given the power to force a merger between banks in the case of insolvency, while LPS was allowed to raise money through bond sales and borrowing from the government.

The government’s “severe” scenario is for a contraction in GDP of 0.4 percent this year and the rupiah exchange rate plunging to 20,000 to the dollar due to the outbreak of the COVID-19 respiratory disease caused by the novel coronavirus.

Authorities have said their baseline scenario is for 2020 economic growth of 2.3%, significantly weaker than last year’s 5.02%. Bank Indonesia Governor Perry Warjiyo on Thursday said he expected the rupiah to strengthen to 15,000 a dollar by the end of the year. The currency closed at 15,800 per dollar on Thursday.

Indonesia has reported 3,293 cases of COVID-19 and 280 deaths.


Category: Indonesia

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