The financial debacle facing one of Indonesia's largest private banks, Bank
Duta, will force the country's monetary authorities to tighten their supervision of the entire banking industry, bankers and analysts in Indonesia and Singapore said.
The scandal involving Bank Duta's estimated losses of between US$200 million and US$300 million will also force smaller and weaker banks to merge into larger units with stronger financial foundations, they said.A central bank official did not dismiss the possibilities that other banks could suffer the same financial problems as Bank Duta. "We are telling all banks to intensify their internal controls."
Indonesia's banking industry, comprising 155 banks with a network of 3,573 branches as of July 1990, is seen by analysts as standing on shaky ground.
"We saw this coming (Bank Duta's financial trouble). Most banks violate banking rules like proper capital adequacy ratio and proper loans to assets ratio. These banks just want to keep lending money to keep up with their competitors," the head of research of an Indonesian brokerage said.
He added that intense competition has led to aggressive expansion plans. There has been a 50 percent increase in the number of bank branches during the past two years.