Condition of Indonesian Banking

1 November 1998 was the begining of the banking crisis in Indonesia, 16 (sixteen) banks were closed by the Central Bank of Indonesia (BI). The clousure of these 16 (sixteen) bankjs resulkted in customers making massive withdrawals and transfer of funds, whic was also followed by the rejection L/C (letter of credit) from national banks by foreign banks. The clousure of 16 (sixteen) banks turned out to have sytemic consequences for other national banks.

After the clousure of the 16 (sixteen) banks, the level of public trust in national banking increasingly decreased, where bank offices were filled with customers queing to withdraw funds or transfer funds to foreign banks, distrust of these banks was based on the lack of guarantees for customers, is there will be funds if a bank closes and ends up being liquidated, consedering at that time there was no institution which provides certainty to customers regarding their deposits in the bank.

The closure of these 16 banks also provides an easy picture for customers that there is mismanagement of nationals bank and weak of supervision. Due to the condition of Indonesian Banking at that time which had a systemic impact to other nationals banks, the government of Indonesia guarantee the payment of the obligations of the obligations of nationals bank to the customers and creditors (blanket guarantee), the cost for saving national banking system is 800 trillion rupiah .

The condition of banking in 1998 was valuable lesson, due to this condition, nowdays Indonesia has legal regulations in term of bank supervision and bank rescue efforts, Indonesia has financial supervision authority (OJK) as financial supervision, Indonesia has Deposit Insurance Sorporation (LPS) is an institution that gurantees customers funds.