LPS Says Quality of Banking Assets Affects the Duration of Liquidation and Recovery Rate

JAKARTA - The Deposit Insurance Corporation (LPS) stated that the quality of the assets of the liquidated banks greatly affects the duration of the liquidation and recovery rate or recovery of asset value.

Member of the Board of Commissioners for the Program for the Guarantee of Deposits and Resolution of the LPS Bank Doddy Zulverdi said that the average duration of the bank's liquidation at LPS took about 23 months, while the recovery rate was recorded at around 28 percent.

"Now there are still 17 banks that are still in the liquidation process that we are handling (out of a total of 154 banks in liquidation since LPS was established until June 2026)," said Doddy, quoted by Antara.

According to him, the duration of the liquidation process in Indonesia is still relatively shorter compared to a number of neighboring countries that have similar banking characteristics, especially those with many small banks or rural banks.

Doddy gave examples of the Philippines and Russia whose liquidation settlement process can last longer, even approaching 10 years.

He also explained that the length of the liquidation process is determined by the quality of the assets and the complexity of the problems owned by the bank when it is handed over to LPS.

Of the 158 banks in the resolution submitted by the regulator to LPS since the institution was established, as many as 154 banks ended up in the liquidation process because the quality of their assets was very bad.

The problems found include fictitious credits, credits in the name of certain parties other than the actual debtor, collateral that is not adequately tied, credit without collateral, to assets that are difficult to trace or monitor.

"So the quality of credit from the banks that were then handed over to LPS was very bad," explained Doddy.

He added that the poor quality of the assets had an impact on the low level of asset recovery.

For your information, the liquidation recovery rate of banks which reached around 28 percent is calculated from the comparison between the liquidation result and the total assets of the bank in liquidation.

The total liquidation proceeds obtained amounted to IDR 971.28 billion, while the total assets of the bank in liquidation were recorded at IDR 3.45 trillion.

However, according to Doddy, the recovery rate is still in line with countries that have a banking structure similar to Indonesia.

In the Philippines and Russia, for example, the bank liquidation recovery rate is also below 30 percent. Meanwhile, countries with more advanced financial systems such as South Korea and the United States recorded a recovery rate of close to 50 percent.

"So that is the picture of the problems we face, especially in BPR, which causes the duration of liquidation and the recovery rate is relatively low," said Doddy.