definition of conventional bank and the rules, shortcomings, advantages and case examples of conventional bank
CHAPTER I
PRELIMINARY
A. Background
Bank are one of the financial
institutions that have an important role in the economy of a country as a
financial intermediary. Bank in Article 1 paragraph (2) Law No. 10 of 1998
concerning amendments to Law No. 7 of 1992 concerning banking is a business entity
that collects funds from the public in the form of deposits and distributes
them to the public in the form of loans and / or other forms in order to
improve the standard of living of many people.
Bank can be classified according
to function, ownership, status, and how to determine prices. According to its
function, banks are divided into Central Banks, Commercial Banks, and People's
Perkeditan Banks. According to its ownership, banks are divided into Government
Banks, Private Banks, and Mixed Banks. According to its status, banks are
divided into Foreign Exchange Banks and Foreign Exchange Banks. And according
to how to determine the price, banks are divided into Conventional Banks and
Islamic Banks
B. Formulation of the problem
1. Definition of conventional bank?
2. Advantages and disadvantages of
conventional banks?
3. The rules of conventional banks?
4. Example case of conventional Bank
5. Conventional Bank Products
CHAPTER II
DISCUSSION
A.
Definition of conventional bank
Definition of conventional bank
Conventional bank are bank that
carry out conventional business activities which in their activities provide
services in payment traffic.
Conventionally it comes from
English "convention", in Indonesian means meeting, so a conventional
bank is a bank whose operating mechanism is based on a mutually agreed system
at a meeting (agreement). But in reality, the banking system that uses this
interest has never been agreed upon in any convention. This then causes the
interest taken by conventional banks to become usury.
B.
Advantages and
disadvantages of conventional banks
Advantages and
disadvantages of conventional banks
Advantages
1. The
interest method has long been known to the public, Conventional Banks are
easier to attract depositors so that it is easier to obtain capital.
2.
Conventional banks are more creative in creating products.
3. Customers
are familiar with the interest method compared to profit sharing methods.
4. More
exciting competition among banks can spur work better
5.
Government regulations and policies that are more established for conventional banks, so that banks are more free to move
more decisively.
6.
Consideration of ease of location or accessibility: strategic office location,
number of ATM
7.
credibility / trust / security
8. Fast
service
9. A broad
and advanced network, supported by promotion through mass media so that it is
easily recognized by the public.
Disadvantages
1.
Management factors are characterized by inconsistencies in lending, excessive
interference of owners and unprofessional managers.
2.
Non-performing loans due to the procedure for granting credit does not have the
potential and appearance of lending to the group itself and certain circles
3.
fraudulent practices such as banks in banks and fictitious transactions
4. Practice
speculation that is too ambitious and without calculation
C.
The rules of
conventional banks
The rules of
conventional banks
1. Set
interest as a price, both for savings products such as savings, time deposits,
and loan products (credit) given based on a certain interest rate.
2. For other
bank services, the bank uses or applies various costs in a nominal or certain
percentage. This costing system is called fee based.
3.
Determination of interest rates made at the time of contract with guidelines
must always be profitable for the bank.
4. The
percentage is based on the amount of money (capital) lent. Determination of
interest rates made at the time of contract with guidelines must always be
profitable for the bank.
5. The
amount of interest payments is not binding even though the amount of profit is
doubled when the economic situation is good.
6. Fixed
interest payments as promised without consideration of projects carried out by
the customer profit or loss.
D.
Example case of
conventional Bank
Example case of
conventional Bank
The
Century Bank case
Arose when the Government through the Deposit Insurance Agency
(LPS injected capital of Rp. 6.76 trillion to save the bank. This amount became
so large and attracted public attention because the Bank Century rescue fund
was originally estimated to only amount to Rp. 632 billion. resulted in various
accusations against Bank Indonesia (BI) and the Ministry of Finance as
determinants of Century Bank's rescue policy on November 20, 2008 through the
Financial System Stability Committee.
From this case the main issue at issue was whether or not
the Century Bank's rescue decision was appropriate for November 2008. The
government through BI and the Ministry of Finance argued that the rescue of
Century Bank through the injection of funds was appropriate for reasons of
avoiding systemic risks. the bank was feared a repeat of the financial crisis
like in 1998.
On this decision many parties considered that the
decision to save Bank Century was inappropriate. In addition to using state
money which is public money, the reason for the possibility of systemic risk is
less accountable. According to those who disagree with the rescue of the bank,
the closing of Bank Century will not disturb the stability of our country's
banking system because the Bank's market share only covers 0.1% of the number
of banking customers in Indonesia.
In addition, the assets of Bank Century only accounted
for 0.3% of the total assets of Indonesian banks. They also believe that the
closure of Bank Century will not cause a rush to the national banking system or
a repeat of the 1998 financial crisis.
Another issue that arises related to the injection of
funds is the alleged misappropriation of capital injections that flow to
certain parties. Many parties doubt the truth of the capital flow because of a
conflict of interest. This conflict of interest caused the decision to save
Century Bank only to save large depositors and not to save the banking system.
At that time the main reason for the Government to save
Bank Century was the fear of systemic risk and rush in the national banking
system. The closure of the Century Bank at the time of the global financial
crisis (November 2008) was feared to have a severe chain impact like the 1998
case.
The closure of Century Bank is expected to cause panic in
its customers. This panic prompted other customers to withdraw money from many
banks. Especially small banks of the Century class and move to larger banks.
This massive withdrawal resulted in the initially healthy
banks becoming problematic and experiencing liquidity problems. As a result,
these banks will try to find funding by borrowing funds from large banks
through interbank loans.
In this case large banks tend to be more careful in
disbursing funds so that smaller banks are increasingly pressed because of
difficulties in obtaining liquidity. In this situation, many banks will fall.
The banking system will experience a rush and result in a
sharp rise in lending rates. In addition, there will be a lot of bad credit so
that customers will suffer losses and the industrial sector will also be
affected.
As a result large banks will be affected and the banking
system will be paralyzed. A further result is the decline in the credibility of
the national banking system so that large-scale capital outflows will occur.
This will affect national investment, country risk, and the overall Indonesian
economic system.
According to BI the definition of systemic risk is the
risk of failure of one participant in fulfilling their obligations that are due
so that other participants also experience liquidity difficulties which in turn
become unable to fulfill their obligations. Bank Indonesia bases the impact of
systemic risk criteria on 5 (five) things, namely 1) Impact on financial
institutions, 2) Impacts on financial markets, 3) Impacts on payment systems,
4) Impacts on market psychology, and 5) Impacts on the real sector.
Actually the occurrence of systemic risk is a possibility
that can occur or not occur at all. The probability of this systemic risk will
increase if global economic and banking conditions are not healthy.
The Government's concern at that time was due to the
closure of Lehman Brothers on September 15, 2008 which caused a global
financial and banking crisis. In the Century case that occurred in November
2008 the world economic and banking conditions were in a crisis period so the
possibility of systemic risk was very high.
On the other hand the problems that occur at Bank Century
will not be systemic risk (or even if it becomes systemic risk it will have a
relatively small probability) for the economy and banking if it does not
coincide with the global crisis. Thus in addition to the internal factors of a
bank, the possibility of systemic risk will depend on external conditions such
as general economic conditions, banking stability, political and security
stability, and so on.
However, keep in mind that systemic risk will always be
inherent in the banking world. It's just that the possibility of systemic risk
varies greatly depending on the internal and external conditions of the banking
system itself. Because of its inherent nature in the banking system, systemic
risk cannot necessarily be eliminated.
For this reason, actions that can be taken are
anticipatory steps, good risk management, and the application of appropriate
policies to deal with problems such as those that occur in the Century Bank
case.
Systemic Risk and State Financial Risk (Fiscal Risk) as
previously explained the occurrence of systemic risk will cause adverse effects
on the economy. If systemic risk is feared to occur, all potential losses that
are initially only a possibility will occur.
This loss will result in state finances either directly
or indirectly. Directly the Government must spend a budget to save and return
the funds of its customers. Indirectly the Government will incur large costs to
restore the economy through various monetary and fiscal policy instruments.
In addition, the deteriorating economic situation will
cause a decline in state revenues from the tax sector. The decline in revenue
and an increase in expenditure is a direct fiscal risk and the impact is
directly felt. Indirect losses caused by systemic risk will affect the progress
of the country in the future. Much more resources will be needed to catch up
with what happened. In addition, this systemic impact is feared to cause many agreements
that will default and require the state to spend not a small amount of money to
pay it. Broader and larger impacts can occur and result in losses that have
never been predicted like the 1998 crisis.
In the Century case, we can see that the policy taken by
the Government caused the Government to issue a bailout amounting to Rp. 6.76
trillion to prevent the occurrence of greater losses estimated at Rp. 30
trillion. This means that if the Government does not bail out Bank Century the
possibility of losses and costs to be borne by the Government is expected to
actually swell and reach Rp 30 trillion. The bailout comes from LPS whose
initial capital comes from State finances so that cases like this have a direct
risk impact on State Finance. At first glance it can be seen that the
Government has spent substantial funds for something that does not necessarily
happen. This kind of event is one form of fiscal risk that can be detrimental
to the State's finances and can occur at any time. However, given the enormous
risk potential if the bail out is not carried out, the Government decides to
save Bank Century. Apart from the existence of scenarios and various types of
fraud in the rescue of Century Bank this case has posed a big risk to the
State's finances.
Seeing the huge potential losses required the right steps
to prevent or minimize the consequences of systemic risk. Things that can be
done include preparing anticipatory steps in the framework of managing risks
and improving the banking and financial systems of this country.
Besides that, emergency measures are also needed which
are deemed necessary to maintain financial system stability at critical moments
that require immediate handling. As a precautionary measure, a mechanism such
as an Early Warning System is needed to monitor and provide periodic reports to
agencies authorized to supervise banks.
The results of the monitoring will be used as a basis for
assessing the economic conditions in general and the banking system in
particular. This report will be followed up by the authorized unit to carry out
preventive steps that must be taken. A process that is no less important to
supporting good risk management is the existence of open supervision of the
authorities properly. The role of monitoring and supervision is a decisive step
in managing these risks.
Another thing that is very important in supporting the
risk management process for systemic risk is the existence of a healthy system
in the world of banking and finance. In addition, it is absolutely necessary
for legislation to regulate and provide supervision of the banking and
financial world.
So far, our financial and banking systems still refer to
the Bank Indonesia Law and the Deposit Insurance Corporation Act (LPS). The
Financial Sector Safety Net Bill (JPSK) proposed by the Government since April
2008 still faces a deadlock in its ratification. The JPSK bill was prepared by
the Government after the financial crisis in America proved to have a major
influence on the world economy. In addition to regulating general matters in
terms of risk management, this regulation is expected to be a strong legal
basis for the steps taken by the Government.
This regulation must also contain clear authority to
State officials who are entitled to make decisions related to the banking
system risk management process. Thus a good set of analysis and regulations is
expected to reduce polemics and potential risks so that cases like Century do
not occur again in the future.
E.
PRODUCTS AND SERVICES CONVENTIONAL
BANK
PRODUCTS AND SERVICES CONVENTIONAL
BANK
1. Savings
For those of
you who are often in contact with banks, of course, you are already familiar
with bank products that are currently widely used by banks to raise funds from
customers, and generally from savings in savings themselves the bank offers
products from education savings to old age savings. This is done solely by banks
to increase their profits
2. Deposits
Another with
savings, this one banking product is a deposit product but with a certain
period of time, so customers can only take the money according to the time
deposit chosen, when compared to savings deposits have a much greater interest
offer
3. Current account
While giro
is a treasury product that functions to transfer funds from a customer's
account to another customer's account. The function of the current account is
nothing but to facilitate financial transactions
4. Check
Check is a
banking product that facilitates financial transactions. The check is a warrant
to the bank to withdraw funds in the amount of the funds stated on the check.
Whereas the check itself consists of various types, one of which is a check on
behalf of and a performance check
5. Credit
Credit is a
banking product that is able to provide large profits to the banking sector.
This happens because with bank credit get an opinion in the form of a
difference in the interest rate on credit with the interest rate savings.
From the
credit product, the bank offers a type of credit which includes working capital
loans, investment loans, trade credit and consumer loans
6. Other service products
Other
important banking products are other service products which include money
transfers, RTGS transactions, clearing transactions etc.
CHAPTER III
Conclusion
So the
conclusions that we can take from the material we are discussing are, conventional
banks certainly have various advantages that make people choose to use their
services. But it cannot be denied that conventional banks have weaknesses. The
strengths and weaknesses of conventional banks are closely related to the
method used, namely the application of interest methods. Conventional banks are
very important in terms of supporting the strength and smoothness of the
payment system and the effectiveness of monetary policy.
Every
financial institution in this case the bank has its own advantages and
disadvantages, the community is free to choose to use the services of any
financial institution but the thing that needs to be considered is the
selective attitude in choosing. This means that the people should not be easily
fooled by the offers given to each bank. In the end, it will only cause harm to
themselves and others.
Services
from each bank must meet the standards that have been determined so that the
community can enjoy the services that are given well.
BIBLIOGRAPHY
Edy Wibowo, Untung Hendy Widodo,
Mengapa Memilih Bank Syariah, GhaliaIndonesia, Bogor, 2005.
Gemala Dewi, Aspek-Aspek Hukum
Dalam Perbankan & Perasuransian Syariah Di Indonesia, Kencana, Jakarta, 2004.
Heri Sudarsono, Bank &
Lembaga Keuangan Syariah Deskripsi dan Ilustrasi, Ekonisia—FE UII, Yogyakarta,
2003.
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