BI stratifies banking industry into 4 categories<\/p>\n
JAKARTA (JP): Bank Indonesia has proposed that the country's
\novercrowded banking industry be regrouped into four strata in a
\nbid to help restructure the ailing sector.<\/p>\n
Bank Indonesia senior deputy governor Anwar Nasution said on
\nTuesday that commercial banks with strong capital, management,
\nnetworks, skill and information technology should be developed to
\nbecome the backbone of the country's banking sector that could
\ncompete in the international market.<\/p>\n
\"This group of banks must not only be able to compete at home
\nbut also overseas,\" Anwar said during a hearing with the House of
\nRepresentatives commission IX for financial and development
\nplanning affairs.<\/p>\n
He said that banks with a \"sufficient level\" of the above
\nqualities could be grouped into a \"national bank\" category that
\nwould be expected to play the role of financial intermediary in
\nthe local market.<\/p>\n
He said that banks with only limited capacity in terms of
\ncapital and the other qualities should be directed to operate
\nonly in provincial or district areas.<\/p>\n
He said that the last category was a smaller group of banks
\nthat would operate only in rural areas.<\/p>\n
Anwar said that reshaping the national banking industry was
\ncrucial to supporting the recovery of the country's economy.<\/p>\n
He explained that the domestic banking industry had been
\nplagued with structural problems including, a huge number of
\nbanks catering for the same market, most banks having moderate
\nassets and capital, being insufficiently competitive, and other
\nstructural problems, such as weak human resources and IT
\ntechnology.<\/p>\n
\"On the other hand, regulation and policy in the banking
\nindustry will be implemented uniformly,\" he said.<\/p>\n
\"Stratification opens the opportunity for banks to reposition
\nthemselves into the relevant category either via mergers,
\nacquisitions, consolidation or divestment so that in the end the
\nnumber of banks will be in line with the needs of the economy,\"
\nAnwar said.<\/p>\n
Although the number of banks dropped greatly from 238 before
\nthe financial crisis that started in the middle of 1997 to 149
\ncurrently, experts have said that the total number is still too
\nhigh. Consolidating the banking sector has been one of the key
\nitems in the country's economic reform agenda.<\/p>\n
Most of the country's private banks are under the supervision
\nof the central bank, while 11 private banks are under the
\nmanagement of the Indonesian Bank Restructuring Agency (IBRA), a
\nunit of the Ministry of Finance. The agency was given controlling
\nownership in the 11 banks following the government bailout in
\n1998 and 1999.<\/p>\n
IBRA earlier said that it planned to develop four banks into
\n\"core banks\", each having a large amount of capital and market,
\nin a bid to restructure and consolidate the banking industry.<\/p>\n
The agency said that two of its banks and two state-owned
\nbanks were qualified to become core banks that would have assets
\nof more than Rp 100 trillion (US$9 billion) each, offering an
\nextensive range of banking products and services, and equipped
\nwith solid banking technology.<\/p>\n
Under the agency's proposal, the core banks could acquire
\nsmaller and weaker banks without having to face the risk of
\ndeterioration in their capital adequacy ratio (CAR), the ratio
\nbetween their capital and risk-weighted assets.<\/p>\n
IBRA also said that medium-sized banks with total assets of Rp
\n10 trillion to 50 trillion could be developed into special banks,
\nfocusing on a particular market niche.<\/p>\n
The consolidation of the domestic banking industry could also
\nhelp avoid the government from having to spend more in
\nrecapitalizing ailing banks.<\/p>\n
The government has decided that all banks must be able to meet
\nthe minimum 8 percent CAR requirement by the end of this year.
\nBut as the banking environment continues to deteriorate, there
\nhas been concern that some banks might not be able to meet the
\nCAR requirement and the government might be forced to
\nrecapitalize them once again.<\/p>\n
The government has issued more than Rp 430 trillion worth of
\nbonds to help finance the recapitalization of some 27 banks. The
\nstate budget covers the interest on the bonds.(rei)<\/p>",
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