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LPS: Rural banks' bankruptcy caused by internal frauds, not bad economy

Tempo - February 20, 2024

Annisa Febiola, Jakarta – In less than two months into 2024, the Financial Services Authority or OJK had revoked the business permits of four rural banks (BPR). Deposit Insurance Corporation (LPS) secretary Dimas Yuliharto said that the permit revocations are not a sign of economic weakness. The main factor for BPRs' bankruptcy, he said, is internal fraud.

"Over the last 18 years, an average of six to seven rural banks have been closed every year. However, this trend is not due to bad economic conditions or the economic impact on BPR," Dimas told Tempo on Monday, February 19.

He said that the main factor of BPR liquidation was internal frauds that happened within the bank. "In general, it's caused by poor governance, which led to frauds and caused the banks' health level to decline and reach a negative."

BPR bankruptcy, Dimas said, has no major impact on the economy. In this case, LPS is ready to guarantee public funds in BPRs that will be closed because of their revoked business licenses. "As long as the 3T guarantee conditions are met by the customer," he said.

There are three conditions that must be met so that public funds in BPR can be guaranteed by LPS. First, the fund must be recorded in the bank's books. Second, the deposit interest rate received by customers does not exceed the LPS guaranteed interest rate. Third, the customers must not commit crimes that are detrimental to the bank.

The OJK has revoked the business permits of BPR Wijaya Kusuma Cooperative, BPRS Mojo Artho Mojokerto City, PT BPR Usaha Madani Karya Mulia, and PT BPR Bank Pasar Bhakti. The settlement of rights and obligations will be carried out by a liquidation team formed by LPS, in accordance with applicable provisions and legislation.

Source: https://en.tempo.co/read/1835655/lps-rural-banks-bankruptcy-caused-by-internal-frauds-not-bad-econom