Indonesia Deposit Insurance Corporation

Indonesia’s President issued two crisis-related regulations to increase the limit on deposit insurance (GoI 2008a; GoI 2008b). Both cited the need to anticipate the effects of the GFC on Indonesia’s banking system, including the potential for bank runs due to a loss of public confidence (GoI 2008a; GoI 2008b). Observers considered the measure to be an attempt to prevent further capital flight to neighboring jurisdictions that had decided to temporarily adopt unlimited guarantees on deposits, including Singapore, Malaysia, and Hong Kong (Hadad et al. 2010; Asian Development Bank 2009).

Although the direct effects of the GFC on Indonesia’s banking system were not as severe as those in neighboring countries, an unexpected squeeze on US dollar lines and large capital outflows did generate some concern about domestic financial stability (Asian Development Bank 2009). Meanwhile, interbank lending suffered from a sharp decrease in market liquidity, share prices dropped precipitously, and the Rupiah’s exchange rate tumbled (IDIC 2009). In response, the government enacted a series of stabilization measures over the course of October 2008 to promote confidence in the financial system (Asian Development Bank 2009). The package included strengthening Bank Indonesia’s capacity to act as lender of last resort, easing liquidity through monetary expansion, and increasing deposit insurance coverage (Asian Development Bank 2009).

The IDIC was also charged with the resolution and restructuring of PT Bank Century Tbk, a systemically important bank, in November 2008 (IDIC 2009).

On October 13, 2008, the President of Indonesia promulgated Government Regulation In Lieu of Law No. 3/2008,^FNA Government Regulation in Lieu of Law is a statutory regulation that can be stipulated by the President of the Republic of Indonesia during a state of emergency (Hamzah, Narang, and Yusari 2021). an emergency decree that allowed the government, in consultation with the Indonesian Parliament, to alter the amount of deposits insured if there were a risk that could reduce public confidence in the stability of the financial system (GoI 2008a, 3). In its preamble, the decree cited the necessity of altering the existing law in light of the destabilizing impacts of the GFC (GoI 2008a). It stipulated that the government could alter the deposit insurance limit in the following situations, after consulting with the Indonesian Parliament:

1. There are simultaneous bank runs,
2. There is significant inflation lasting more than a year,
3. The number of insured depositors accounts for less than 90% of total accounts at all banks, or
4. “There is a threat of crisis which potentially leads to the decrease of public confidence in banking and could harm the stability of the financial system” (GoI 2008b, 2).

On the same day, the President issued Government Regulation No. 66/2008, indefinitely increasing the limit for each deposit account from IDR 100 million to IDR 2 billion (GoI 2008b, 2).

The Indonesian Parliament voted the emergency decree into law on January 13, 2009, preserving the government’s ability to alter the deposit insurance limit as it deemed necessary (GoI 2009). This legislation, Law No. 7/2009, noted that public confidence in banking was critical to the stability of the Indonesian financial system (GoI 2009).

Sources consulted did not specify any coordination between the IDIC and other government agencies or private entities.

As the decision-making body within the IDIC, the Board of Commissioners was responsible for administering the organization and determining its policies (IDIC 2009). The Board, which was wholly appointed by the President and led by a chairman, consisted of six individuals: three Ex-Officio members, representing the Ministry of Finance, Bank Indonesia, and the Bank Supervisory Institution; and three IDIC officials (IDIC 2009). The chairman of the Board and the chief executive officer were chosen internally among the members of the Board (IDIC 2009).

All divisions of the IDIC were subject to internal examinations conducted by the Audit Committee, as well as reviews by “external counterparts” (IDIC 2009).

Every commercial bank was obligated to submit detailed monthly financial reports, which the IDIC used to calculate individual premiums (IDIC 2009). These reports also included the bank’s balance sheet, a profit and loss statement, an administrative account, and a list of liabilities owed to other banks (IDIC n.d.c). Rural banks^FNCommercial banks include foreign banks, joint-venture banks, privately-owned local banks, regional development banks, and state-owned banks, while rural banks (Bank Perkreditan Rakyat) are microfinance institutions that serve agrarian populations and do not provide payment transfers (IDIC 2009; Wasiaturrahma et al. 2020). were similarly required to submit semiannual financial reports detailing balance-sheet information, a profit and loss statement, a list of liabilities owed to other banks, and a list of credits extended (IDIC n.d.c).

Commercial and rural banks were also mandated to submit deposit status reports on a monthly and semiannual basis, respectively (IDIC n.d.c). Additionally, any bank that experiences a change in administration, shareholder structure, or controlling structure must also submit a report to the IDIC (IDIC n.d.c).

Sources consulted do not describe government communications or public reactions related to the intervention.

In its preamble, Government Regulation in Lieu of Law No. 3/2008 cited the necessity of altering the existing law in light of the destabilizing impacts of the Global Financial Crisis (GoI 2008a). The government later reaffirmed its commitment to maintaining public trust in the stability of the Indonesian financial system in Law No. 7/2009 (GoI 2009).

The government had implemented a blanket guarantee until March 2006, at which point it gradually lowered the limit to IDR 100 million by March 2007 (IDIC 2007).

The monthly balance of total deposits generally increased throughout 2008 (IDIC 2009). Total insured deposits doubled to IDR 957.4 trillion between October and December 2008, which the IDIC attributed directly to the new insurance limit (IDIC 2009). The IDIC also reported that it had paid out IDR 557.6 billion to depositors at 21 liquidated banks in 2008 and 2009 (IDIC 2010).

In the event of a bank failure, the IDIC calculated eligible insured deposits based on each depositor’s balance on the date Bank Indonesia revoked the bank’s license (IDIC 2009). The total amount included the initial balance plus interest (or return, in the case of Islamic banks) and, for discount rate-based deposits, the present value with a discount rate as stated on the applicable biljet (banknote) (IDIC 2009).

In September 2005, the government established a new deposit insurance agency, Lembaga Penjamin Simpanan (Indonesia Deposit Insurance Corporation), injecting it with initial capital of IDR 4 trillion in allocated state assets (IDIC n.d.b). The IDIC has since received additional funding from its compulsory one-time membership fees, semesterly insurance premiums, and earnings on its insurance reserve investments (IDIC n.d.b).

The IDIC’s goal was to build its deposit insurance fund to 0.5% of estimated insured deposits by 2010, which represented a target of about IDR 10 trillion that shifted each year as it improved its data about banks’ risk exposures. The provision for insurance claims—its deposit insurance fund—stood at IDR 5.1 trillion at the end of 2008 and IDR 7.3 trillion at the end of 2009 (IDIC 2010).

The government publicly committed to lending to the IDIC in the case of a liquidity shortage that resulted in its inability to pay deposit insurance claims (IDIC n.d.b). Additionally, with approval from the parliament, the government had the authority to recapitalize the IDIC if it were threatened with insolvency (IDIC n.d.b).

The increase in deposit insurance automatically applied to all IDIC members (GoI 2008b). All commercial banks, branch offices of banks domiciled overseas that conduct business within the Republic of Indonesia, and conventional or Islamic rural banks were obligated by the government to maintain membership with the IDIC (IDIC n.d.d). The IDIC does not cover branch offices of banks domiciled in Indonesia that operate outside of the country (IDIC n.d.d).

By year-end 2008, the IDIC had registered a total of 2,047 banks, including 124 commercial banks, 1,792 conventional rural banks, and 131 Islamic rural banks (IDIC 2009).

Sharia-based (Islamic) deposits could take the form of Wadiah-based current accounts and saving accounts, savings accounts or term deposits that adhered to the principles of Mudharabah Muthlaqah or Mudharabah Muqayyadah and whose risks were borne by the bank, and other Sharia-based deposits approved by both the IDIC and the Banking Supervisory Authority (IDIC 2009).

Each bank pays semiannual premiums equal to 0.1% of the average six-month balance of total monthly deposits (IDIC 2008, 43). The IDIC does not require member institutions to carry co-insurance or pay risk-based premiums (Saheruddin 2017, 5).^FNFor more information on the membership contribution, please refer to Key Design Decision 8: Source(s) and Size of Funding.

Following the revocation of a bank’s license by Bank Indonesia and the submission of an insurance claim on deposits, the IDIC would initiate a verification and reconciliation process for determining each deposit’s eligibility for payment (IDIC 2009). The IDIC then had five working days from the starting date of the verification process to begin paying out claims (IDIC 2009). However, the procedure for determining eligibility could take up to 90 working days from the date of license revocation (IDIC 2009). The IDIC was required to announce the date of initial claim submission in at least two nationally circulated publications (IDIC 2009).

According to Law No. 24/2004, as amended by Law No. 7/2009, banks could submit insurance claims to the IDIC up to five years from the date of license revocation (GoI 2009; IDIC 2009). Depositors looking to receive an insurance payout through the IDIC had to provide official documentation to prove their identity and deposit ownership; those who were unable to do so were deemed ineligible to receive compensation (IDIC n.d.e).

The IDIC deemed deposits ineligible for payout if the depositor was considered to have benefited “in an unusual manner” from their account—for example, by taking advantage of interest rates that exceeded the IDIC’s published rates (IDIC 2009).

A depositor could also be ineligible if it had contributed in any way to the bank’s failure (for example, if it was a debtor who held a nonperforming loan) (IDIC 2009). Depositors of failed banks whose shareholders elected to undertake their own resolution and restructuring procedures without IDIC assistance were also not eligible to receive insurance coverage (IDIC 2009).

The Indonesian program did not specify an end date (GoI 2008b; Saheruddin 2017). As of June 2022, the IDIC’s deposit insurance remains capped at IDR 2 billion per depositor (IDIC n.d.a).