BI to assist mergers of 74 private banks<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
\nWednesday the central bank would play a "matchmaker" role in
\nencouraging 74 private banks to merge into several larger banks
\nin a bid to further strengthen the country's beleaguered banking
\nindustry.<\/p>\n
He said Bank Indonesia (BI) already had studied and listed the
\nstrengths and weaknesses of the 74 banks, which could be used as
\na basis for matching banks for possible mergers.<\/p>\n
"The program is currently being worked out," he said at a
\nluncheon organized by the Indonesian Executive Circle.<\/p>\n
The government launched its bank restructuring program on
\nMarch 13 for the country's 128 private banks. Thirty-eight of the
\nbanks were closed, seven taken over by the government and nine
\nqualified for the government's recapitalization program. A total
\nof 74 private banks were determined sound because their capital
\nadequacy ratios (CARs) were at least 4 percent.<\/p>\n
CAR is the ratio between capital and risk-weighted assets.<\/p>\n
The banking authority earlier grouped banks into three
\ncategories based on their CAR levels. Banks with CARs equal to or
\nabove the government-established minimum of 4 percent were put in
\nthe Bank A category; banks with CARs between less than 4 percent
\nand minus 25 percent were placed in the Bank B category; banks
\nwith CARs of less than minus 25 percent were grouped in the Bank
\nC category.<\/p>\n
Banks grouped in the C category and those in the B category
\nwhich failed to qualify for the government's recapitalization
\nprogram have been closed.<\/p>\n
However, experts said banks in the A category were mostly
\nsmall and there were too many of these banks to allow for sound
\nbanking development. They urged the banking authority to
\nforcefully merge these banks because many of them still were
\nvulnerable to the current economic crisis.<\/p>\n
Sjahril, however, stressed that the government would not force
\nbanks into mergers.<\/p>\n
"We're not going to force them (into mergers), it's up to
\nthem. We're only making suggestions."<\/p>\n
Under the state-sponsored bank recapitalization program in
\nwhich nine private banks are participating, the government will
\nprovide up to 80 percent of recapitalization funding, while the
\nbanks must raise the remaining funds.<\/p>\n
Sjahril said the government would issue bonds to finance the
\nrecapitalization program before April 21.<\/p>\n
Interest rates<\/p>\n
The government has not yet decided the interest rates on the
\nbonds but informed sources said they could be either a fixed 3
\npercent rate or a 3 percent plus inflation rate.<\/p>\n
The cost of the bonds' interest rate for the 1999\/2000 fiscal
\nyear is expected to amount to Rp 34 trillion, of which Rp 17
\ntrillion will be provided by the sale of bank assets taken over
\nby the Indonesian Bank Restructuring Agency (IBRA). The remaining
\nRp 17 trillion will come from the state budget.<\/p>\n
However, Sjahril said the government would not rush into
\nselling the assets seized from liquidated and nationalized banks
\nin order to get the optimum price for the assets.<\/p>\n
He is optimistic the Rp 17 trillion target for the sale of the
\nassets will be reached despite the current economic crisis
\nbecause this figure is meager compared to the nearly Rp 200
\ntrillion of bank assets currently being held by IBRA.<\/p>\n
Sjahril also is heartened by improving macroeconomic
\nconditions, particularly a more stable exchange rate and
\ndeclining inflation.<\/p>\n
He said stable macroeconomic conditions would provide more
\nleeway for interest rates to continue to decline, which would end
\nthe negative spread from which most banks currently suffer.<\/p>\n
Sjahril is confident inflation will continue to fall in April,
\nleading to lower interest rates, despite the upcoming June
\ngeneral election.<\/p>\n
Indonesia achieved 0.18 percent deflation in March. This is
\nthe first month of deflation in the country since October last
\nyear.<\/p>\n
Bank Indonesia officials earlier projected interest rate
\nlevels would reach about 30 percent in the near future. Interest
\nrates currently are hovering at about 37 percent.<\/p>\n
"We've seen some encouraging signs. The road ahead may not be
\nsmooth, but we at BI are cautiously optimistic," Sjahril said.<\/p>\n
He pledged the central bank would continue to put the
\nstabilization of macroeconomic conditions, particularly lowering
\ninflation, at the top of its priority programs.<\/p>\n
"Our role will not stop with the launching of the bank
\nrecapitalization program. There's still much more to be done,
\nparticularly with regards to the Bank A category and monetary
\nstability."<\/p>\n
Under an agreement signed on Tuesday, the Reserve Bank of New
\nZealand would advise BI on achieving a low-inflation economy.
\n(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-to-assist-mergers-of-74-private-banks-1447893297",
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