(i)  The sharp depreciation of the rupiah suddenly blew up the rupiah value of banks’ liabilities denominated in foreign currencies and put the banks with short position in serious problems;  (ii)  The economic crisis put banks’ customers (debtors) in problems which depressed the value of banks’ assets; and  BIS Review 34/1999  2  (iii)  The tight monetary policy to stabilize inflation and exchange rates, and the concomitant high interest rates, resulted in negative spreads for the banks.
All the factors I cited earlier imply depletions of banks’ capital base. And the longer the problems remain, the sharper the depletion of banks’ capital will be. Indeed, the results of the due diligence being run on the banks in 1998 show how deep the impact of the crisis on the banking sector has been.