Govt funds bank recapitalization<\/p>\n
JAKARTA (JP): Domestic commercial banks with capital adequacy
\nratios (CAR) of between minus 25 percent and plus 4 percent will
\nhave to participate a recapitalization program in which the
\ngovernment will provide up to 80 percent of the required funds,
\nBank Indonesia Governor Sjahril Sabirin said on Tuesday.<\/p>\n
Sjahril told reporters the recapitalization program would be
\nbased on the results of the due diligence audits currently being
\nconducted on all banks. These are expected to be completed by the
\nend of October.<\/p>\n
\"These audits will determine the financial status of each bank
\nand the amount of capital needed for the recapitalization
\nmeasures,\" he said after a meeting with President B.J. Habibie.<\/p>\n
\"The recapitalization program is intended to maintain the
\nexistence of banks which have prospects of surviving and
\ndeveloping further in order to accelerate the economic recovery.
\nThe measures are needed because many banks are now grossly
\nundercapitalized.\"<\/p>\n
CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
Sjahril said that banks with CAR of below minus 25 percent
\nwould be given 30 days to inject fresh capital or improve their
\nasset quality in order to qualify for the recapitalization
\nprogram.<\/p>\n
\"If they fail to meet the deadline, the banks in this group
\nwill be taken care of by Bank Indonesia and the Indonesian Bank
\nRestructuring Agency (IBRA),\" he said.<\/p>\n
IBRA was established early this year to restructure the
\ncountry's ailing banks and help recover the central bank's
\nmassive liquidity support injected into troubled banks.<\/p>\n
The financial authorities have required all banks to meet the
\nminimum 4 percent CAR requirement by the end of this year, 8
\npercent by the end of 1999 and 10 percent by the end of 2000.<\/p>\n
Sjahril said that banks joining the recapitalization program
\nwould be required to repay all Bank Indonesia liquidity support
\nthey had received.<\/p>\n
The central bank has injected more than Rp 141 trillion
\n(US$12.8 billion) in liquidity support to troubled banks since
\nJanuary. Fourteen banks were given until Sept. 21 to repay the
\ndebts, but only six had made the payment mostly by surrendering
\nfixed assets.<\/p>\n
Sjahril said that banks joining the recapitalization program
\nwould be required to inject fresh money or find new investors.<\/p>\n
\"For every rupiah of capital injected by the owners or other
\ninvestors, the government will put up a maximum of four rupiah,\"
\nhe said.<\/p>\n
The government, he added, would fund capital injections with
\nbonds and that it would take equity in exchange for the capital.<\/p>\n
\"Banks therefore will have to issue convertible preferred
\nshares in exchange for the bonds but these shares won't have
\nvoting rights.<\/p>\n
\"But the government can exercise its voting rights in
\nstrategic matters and if banks' business plans are not realized,\"
\nhe added.<\/p>\n
Banks which join the recapitalization program will have to
\nfirst submit a business plan within one month.<\/p>\n
Sjahril said that the business plan must include details of
\nhow it would settle intra-group lending which had gone sour and
\nreach the 20 percent legal lending limit by the end of December
\n1998.<\/p>\n
The banks must also submit a quarterly plan over a three-year
\nperiod which includes steps on how they would meet the 8 percent
\nCAR requirement by the end of the business plan, he said.<\/p>\n
He added that banks would be allowed to transfer their
\nnonperforming loans and doubtful loans to IBRA with zero book
\nvalue, as long as they do not cause their CAR level to drop below
\nminus 25 percent.<\/p>\n
He said the recovery of the nonperforming loans could be used
\nto reclaim the government's stake in the banks.<\/p>\n
Sjahril added that bank owners would also have the right to
\nrepurchase either part or all of the government's stake at any
\ntime within three years.<\/p>\n
After three years, the government would sell any remaining
\nstake to new investors within two years, Sjahril said.<\/p>\n
Cash payment<\/p>\n
Minister of Finance Bambang Subianto, who accompanied Sjahril
\nat the news conference, said the government would insist the
\nowners and ex-owners of suspended and nationalized banks repay
\ntheir Bank Indonesia liquidity support in cash and not with fixed
\nassets.<\/p>\n
\"Our main principle is a cash payment,\" Bambang said.<\/p>\n
He urged businesspeople who have ceded various assets, claimed
\nto be worth some Rp 206 trillion, including Rp 1.3 trillion in
\ncash, to immediately come up with plans on how to sell the
\nassets.<\/p>\n
\"I expect the plan to have been completed in one month,\" he
\nadded.<\/p>\n
He said the preference for cash was prompted by differences in
\nvaluing the waived assets. The bank owners claimed their
\nsurrendered assets were worth Rp 206 trillion but IBRA's
\nassessment put their value at only Rp 92.8 trillion.<\/p>\n
Bambang also explained that the merger of four state-owned
\nbanks should be completed within two years and promised that it
\nwould not result in layoffs.<\/p>\n
\"The employees won't be displaced by the merger,\" he said.<\/p>\n
The government plans to merge Bank Bumi Daya, Bank Exim, Bank
\nBapindo, and Bank Dagang Negara into a new state-owned Bank
\nMandiri.<\/p>\n
The corporate business of Bank Rakyat Indonesia would also be
\nintegrated into the new entity, leaving this bank in charge of
\nsmall and medium businesses.<\/p>\n
The government is expected to announce a legal merger
\nframework for the banks today.<\/p>\n
The bad debts of the banks will be transferred to IBRA, and
\nthe government is expected to inject fresh capital into the new
\nbank. (rei\/prb)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-funds-bank-recapitalization-1447893297",
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"sponsor": "Okusi Associates",
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