UPDATE 2-Indonesia halts operations of bank over capital

(Adds quotes from central bank, deposit agency, analyst)

By Dicky Kristanto and Sonya Angraini

JAKARTA, April 17 (Reuters) - Indonesia's central bank said on Friday it had withdrawn the operating licence of small lender, Bank IFI, after it failed to increase its capital, but said it was an isolated case and the banking sector remained solid.

It was the second time Indonesian authorities have moved to liquidate a commercial bank since 2004, when some small banks were closed.

The latest move did not have a significant impact on the rupiah IDR= or the stock market .JKSE.

"There should be no cause for worry because the banking sector is still solid," Dyah Makhijani, a Bank Indonesia director, told reporters, adding there was no systemic risk since the bank only accounted for 0.01 percent of total banking assets.

"Bank Indonesia had tried a rescue, including asking for a capital injection from the controlling shareholders, but it could not be rescued," Makhijani added.

Purbaya Yudhi Sadewa, an analyst at Danareksa Research Institute, said the case did not appear to signal a problem with the overall banking sector, but indicated pressure on some smaller banks, particularly those serving customers in export-oriented sectors such as the commodities sector.

"Does this case indicate problems in the health of the whole banking sector. Probably not," Sadewa said.

"But BI (Bank Indonesia) has to closely monitor this," he added.

Unlisted Bank IFI had total assets of 442 billion rupiah ($41.30 million) as of March 31, the central bank's Makhijani said.

Bank IFI's capital adequacy ratio, a key measure of financial health, was below the minimum requirement of 8 percent, while gross non-performing loans stood at 24 percent as of March, against below 5 percent in most other banks, the official said.

Makhijani said that after discussions with the state deposit insurance agency (LPS) authorities had decided not to continue seeking a rescue.

"After making thorough calculations, not rescuing the bank is less costly than rescuing it," Firdaus Djaelani, the agency's executive director said.

Bank IFI is controlled by the Ramako Gerbang Mas Group, which is owned by businessman Bambang Rachmadi.

Late last year, the state deposit insurance agency rescued middle-sized lender Bank Century Tbk (BCIC.JK), the first bank rescue since the Asian financial crisis in 1997-1998. ($1 = 10,700 rupiah) (Editing by Ed Davies)