Banking analysts cast doubt over government plan<\/p>\n
JAKARTA (JP): Analyst have cast doubt on the feasibility of a
\nplan to recapitalize 70 of the country's 166 commercial banks,
\nsaying that neither the government nor the banks would be able to
\nafford such a costly program.<\/p>\n
Rijanto Sastroatmodjo, a former senior official in Bank
\nIndonesia, told a banking forum that it would be hard to raise
\nthe funds required to finance the recapitalization program, which
\nhas been costed at Rp 257.5 trillion (US$34.3 billion).<\/p>\n
\"The only source of funds available now is the government
\nbecause we can no longer place our hopes on foreign capital.
\nPrivate banks are unlikely to come up with the money themselves,\"
\nhe said.<\/p>\n
The government-sponsored recapitalization program is intended
\nto revitalize the ailing banking sector by increasing banks'
\ncapital adequacy ratios (CAR) to 4 percent. The capital adequacy
\nratio is the ratio between equity capital and risk weighted
\nassets.<\/p>\n
The government will provide 80 percent of the funds needed to
\nrecapitalize banks with capital adequacy ratios of between 4
\npercent and negative 25 percent, with the banks themselves
\nresponsible for providing the remaining 20 percent.<\/p>\n
Banks with ratios below negative 25 percent do not qualify for
\nthe program and must inject fresh capital within 30 days or risk
\nclosure for failing to meet the minimum requirement.<\/p>\n
Rijanto said that some banks had no chance of raising the
\nnecessary funds and would definitely not be able to participate
\nin the program.<\/p>\n
He said that others might not be interested in contributing a
\n20 percent share of the required funds because of doubts over the
\nprogram's feasibility.<\/p>\n
\"Those which could provide 20 percent of the required funds
\nmay think twice because they would be able to earn larger profits
\nby depositing the money rather than committing it to a dubious
\nprogram,\" he said.<\/p>\n
He also said the House of Representatives might object to the
\ngovernment's plan to finance the recapitalization program.<\/p>\n
To finance the program, the government will issue bonds to the
\nparticipating banks. Interest payments on the bonds will be drawn
\nout of the state budget.<\/p>\n
Window dressing<\/p>\n
Economist Laksamana Sukardi said the program was merely a
\n\"window dressing\" and criticized the government for not taking an
\nholistic approach to the banking sector.<\/p>\n
\"This window-dressing approach is against the principle of
\nprudence,\" he said.<\/p>\n
The requirement to increase capital adequacy ratios to at
\nleast 4 percent was merely for book-keeping purposes, he said,
\nadding that no real inflow of capital would result.<\/p>\n
He said banks would give their book keeping a make-over rather
\nthan indulging in a massive overhaul, further damaging their
\nstanding in the eyes of the international community.<\/p>\n
Laksamana said the government should instead take stern
\nmeasures to kick start the country's banks, even at the risk of
\ninflicting further pain on the blighted sector.<\/p>\n
\"All undercapitalized banks which are unable to come up with
\nthe cash must be nationalized temporarily and then merged,\" he
\nsaid, adding that banks which are totally insolvent should be
\nclosed down.<\/p>\n
Rijanto said that daily bank transactions had slumped to Rp
\n12.5 trillion, down from around Rp 30 trillion before the crisis
\nbegan last year.<\/p>\n
Non-performing loans at private banks now average 63 percent,
\na figure expected to rise to 80 percent by the end of the year,
\nhe added. (das)<\/p>",
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