Banks propose fixed asset injection<\/p>\n
JAKARTA (JP): Bankers have urged the government to allow
\nundercapitalized banks to improve their capital adequacy ratios
\n(CARs) by injecting their fixed assets into their capital
\nstructure.<\/p>\n
The bankers said that using fixed assets to prop up the CAR
\nposition was the only alternative left because securing fresh
\ncapital amid the current economic crisis was almost impossible.<\/p>\n
They also said that the one-month given to banks with a CAR of
\nless than minus 25 percent to come up with fresh money to boost
\ntheir CAR level to be eligible for the government's bank
\nrecapitalization program was unrealistic.<\/p>\n
President of Bank IFI Harry Rachmadi said on Saturday that
\nimproving the CAR level through injections of fixed assets was
\nthe only practical way forward because bank owners were suffering
\nsuch severe liquidity problems.<\/p>\n
\"If the capital enlargement is made through an asset
\ninjection, it is workable,\" he was quoted by Antara as saying.<\/p>\n
He pointed out that many banks had buildings and other
\nproperty assets which under normal economic conditions would have
\na good market value.<\/p>\n
The government has required all banks to have a minimum CAR
\nlevel of 4 percent by the end of this year, 8 percent by the end
\nof 1999, and 10 percent by the end of 2000.<\/p>\n
The CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
A due diligence financial audit of all the country's more than
\n200 commercial banks was scheduled to have been completed on
\nSaturday.<\/p>\n
Bank Indonesia Governor Sjahril Sabirin recently indicated
\nthat most of the banks suffered an acute capital deficiency, with
\nCAR levels of between minus 25 percent and plus 4 percent.<\/p>\n
Under the government's recapitalization plan, these banks have
\nto come up with at least 20 percent of the funding, while the
\ngovernment would provide the remaining 80 percent.<\/p>\n
Banks with CARs of less than minus 25 percent have to inject
\nfresh money in one month to boost the CAR level beyond minus 25
\npercent to qualify for the recapitalization program. The other
\nalternative is to renegotiate their problem loans to reduce their
\ncash requirements. Those failing to meet the requirement would be
\nhanded over to the Indonesian Bank Restructuring Agency (IBRA)
\nwhich might force the banks to either merge with stronger banks,
\nfind new investors or even be liquidated.<\/p>\n
\"For bank owners, providing the fresh money in such a very
\nshort period in the current difficult situation is not a simple
\nmatter,\" said Bank Putera president Masyhud Ali.<\/p>\n
\"And the obligation is much more burdensome for banks with
\nCARs of less than minus 25 percent if they don't want to
\nsurrender to IBRA.\"<\/p>\n
Masyhud said; \"During the current tight liquidity conditions,
\nwhere will the bank owners find enough cash. Selling assets now
\nwill only get a very low return. Providing Rp 3 billion to Rp 4
\nbillion may not be difficult, but if hundreds of billions of
\nrupiah are needed, where will we get the cash?\"<\/p>\n
With such difficulties in recapitalizing the banks, one banker
\nestimated that there would be only about 30 banks which could
\nsurvive the recapitalization process.<\/p>\n
A source at the National Private Banks Association (Perbanas)
\nsaid, however, that the government might reduce the
\nrecapitalization requirements.<\/p>\n
He said that at the Oct. 8 meeting between the association and
\nthe banking authorities, the government said it might consider
\ngetting bank owners to install the recapitalization fund in
\nstages, but would not allow asset injections.<\/p>\n
Bank recapitalization is seen as the most difficult and costly
\npart of the country's bank restructuring efforts. Both bankers
\nand analysts are still in the dark to how it will be financed.<\/p>\n
Analysts have assumed bank recapitalization would cost some Rp
\n350 trillion to Rp 400 trillion. The government has said that it
\nwill finance 80 percent of the funding by issuing bonds but it is
\nnot clear who will buy the bonds and at what price.<\/p>\n
Perbanas secretary-general Wibowo Ngaserin said that there
\nwould not be any fresh money injections through government
\nfunding because the bond issue was only meant to improve the
\nbanks' balance sheets.<\/p>\n
\"There won't be a single cent from the government. It's only
\nfor accounting purposes,\" he said, adding that the only cash
\nwould come from the bonds coupon rate which has yet to be decided
\nby the government.<\/p>\n
The government has said that it would take equity from the
\nbanks in exchange for the bonds. The bank owners have up to three
\nyears to redeem either part or all of the government's stake.
\nAfter three years, the government will sell any remaining stake
\nto new investors within two years. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banks-propose-fixed-asset-injection-1447893297",
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