Banks need more than recapitalization: Expert<\/p>\n
JAKARTA (JP): The government-sponsored bank recapitalization
\nprogram will do little to right the country's ailing banking
\nsector if no measures are imposed to force the banks to operate
\nmore professionally, a noted German banking expert said on
\nMonday.<\/p>\n
Chief economist of Germany's Deutsche Bank Group Norbert
\nWalter said here that owners and the management of the country's
\nbanks should come from a circle of people who were consummately
\nknowledgeable about the banking sector to ensure professionalism.<\/p>\n
\"Only people that have demonstrated skills are allowed in the
\nbanking industry,\" he said in his presentation on the Indonesian
\nbanking sector.<\/p>\n
Walter believed the unprofessionalism of bank officials led to
\ninvestment of Indonesian banks' funds in unsound and
\ninappropriate projects.<\/p>\n
Most domestic savings were consequently used to finance
\nunproductive sectors while overlooking economic yields for the
\ncountry, he said.<\/p>\n
\"Only recapitalizing the banks, and not changing them, is not
\nenough.\"<\/p>\n
He acknowledged that the bank recapitalization program, as
\npart of the effort to restructure the financial institutions of
\nthe country, was an important component in effecting economic
\nrecovery.<\/p>\n
But the program would be likely to fail if there was no change
\nin the banking culture and professionalism, he warned.<\/p>\n
Failure would necessitate another round of recapitalization,
\nwith taxpayers again left to shoulder the costs, he said.<\/p>\n
The government plans to issue bonds to raise about Rp 550
\ntrillion to recapitalize and restructure at least 80 of the
\ncountry's banks in the recapitalization program.<\/p>\n
The banking sector was crippled by the economic crisis,
\ncausing negative interest spreads, runs on several institutions
\nand high levels of bad debt. Most of the country's more than 200
\nbanks have negative capital levels and are struggling under
\nmountains of nonperforming loans.<\/p>\n
The government said in December it would recapitalize the
\nbanking system by assisting banks with capital-adequacy ratios of
\nbetween under 4 percent and minus 25 percent. The government will
\nprovide 80 percent of the funds needed to raise the banks'
\ncapital levels to 4 percent, the minimum level required by the
\ncentral bank. The remaining 20 percent has to be provided by the
\nshareholders.<\/p>\n
Walter advised Indonesian banks to gradually increase their 4
\npercent CAR level to enable them to face a possible downturn in
\ntheir business.<\/p>\n
\"Rock solid equity participation (by shareholders) is needed
\nfor the banking industry in any country,\" he said.<\/p>\n
Walter said that the government should also allow the
\nestablishment of a limited deposit insurance scheme in a bid to
\nprotect bank clients and preclude massive runs on institutions.<\/p>\n
The government introduced a blanket guarantee for bank
\ndeposits early in 1998 following a massive bank run at the end of
\n1997. (udi)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banks-need-more-than-recapitalization-expert-1447893297",
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