The country's banks will need to keep their books even tidier in the future on after the central bank introduced a rule requiring them to implement international best practice of incorporating risk management principles into their financial reporting by 2010.

Bank Indonesia and the Indonesian Accountants Association (IAI) are working on the implementation of international accounting standards for the local banking industry, which will require lenders to precisely state in their balance sheets their current cash flow position, and their holdings or issuances of equities and bonds as either assets or liabilities.

The banks will also be required to issue regular status updates on their finances.

Apart from encouraging good governance and transparency, BI deputy governor Siti C. Fadjrijah said Monday the new rules would also improve the stability of Indonesia's whole financial and monetary sector.

Siti said the 1997-1998 Asian financial crisis had shown that the banking industry had a lot to learn, particularly as regards the importance of transparent financial reporting and the prevention of unscrupulous financial engineering that could affect monetary stability.

"Accounting standards have to be aligned with sound risk management practices, have to promote a forward-looking recognition of risks, and need to discourage the manipulation of accounts, or so-called 'creative accounting'," Siti said.

Siti said the implementation of the international accounting standards would help achieve this, although she also acknowledged that the stricter bookkeeping requirements could affect the profitability of banks, particularly as regards the valuation of bank assets.

BI and IAI would, therefore, determine firstly which types of assets and financial instruments for which market value can be easily calculated, she said, before fully enforcing the new standards in 2010.

The chairman of the IAI's financial accounting standards board, Yusuf Abisana, said that the value of land and buildings could easily be calculated, while bonds, equity holdings and tailor-made instruments would be more difficult to value.

Regarding the fact that state-owned banks might face difficulties in applying the standards in line with the rules issued by the Supreme Audit Agency (BPK), Siti said BI would engage in a process of coordination so as to ensure this problem could be overcome.