Indonesia Seizes Century as Capital Deteriorates

By Aloysius Unditu and Leony Aurora

Nov. 22 (Bloomberg) -- Indonesia seized control of PT Bank Century eight days after the lender delayed meeting a 5 billion rupiah ($413,000) obligation, as its capital has deteriorated.

Century’s capital adequacy ratio, which measures capital against risk-weighted assets and is a gauge of a lender’s health, has fallen to 2.3 percent, below the minimum 8 percent required by the central bank, said Firdaus Djaelani, chairman of Indonesia’s deposit insurance agency, in a telephone interview last night.

“The insurance agency will gradually increase the ratio to at least 8 percent and when it’s healthy we will look for new investors,” Djaelani said.

Indonesia’s deposit insurance agency, which guarantees deposits at banks in Southeast Asia’s biggest economy, will have three years to turn around the firm in Indonesia’s first bailout since the central bank was given more powers to rescue lenders. Bank Indonesia didn’t disclose financial details.

Bank Century will resume operations Nov. 24 after closing on Friday, central bank Governor Boediono said on Nov. 20. Century’s shares were suspended by the Indonesia Stock Exchange yesterday.

Public Confidence

“This is a right move by the government to ensure that the public maintains confidence in Indonesia’s banking system,” said David Chang, a director of PT OUB Kay Hian Securities in Jakarta.

Indonesia’s 13th-largest bank by assets on Nov. 13 failed to provide funds on time because of a “technical problem,” Deddy Triyana, corporate secretary, said then. Banks need to provide funds to a clearing house on a daily basis to ensure matching of debt and credit. The bank settled the obligation later that day.

Indonesia on Nov. 18 enacted a law to allow the central bank to bail out lenders. The new regulations will enable authorities in Indonesia, which spent more than 450 trillion rupiah rescuing lenders in the Asian financial crisis a decade ago, to fund banks in need of liquidity without legal concerns.

“The emergency funding facility, guaranteed by the government, will be given to banks to resolve liquidity problems that may cause systemic problems,” according to the central bank’s Web site. Owners of banks seeking the facility will have to pledge assets as collateral, it said.

Profit at Bank Century, which had assets of 15.2 trillion rupiah at the end of September, fell 7.7 percent to 51.6 billion rupiah in the first nine months of the year.

PT Bank Mandiri, Indonesia’s biggest lender, had assets valued at 318.7 trillion rupiah on Sept. 30.

Bank Century was formed by the merger of PT Bank CIC, PT Bank Pikko and PT Bank Danpac in December 2004. Indonesia has 126 commercial banks.

To contact the reporters on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net;