Govt has yet to decide on crucial bank merger issue<\/p>\n
JAKARTA (JP): Minister of Finance Prijadi Praptosuhardjo said
\non Thursday that the government had not made any decision on
\nwhether to merge weak banks under its control despite a strong
\nwarning from the central bank that the banks must be merged
\nbefore the end of this year or else face closure.<\/p>\n
Prijadi said that bank mergers were not easy because of the
\ncomplexity of banking problems.<\/p>\n
\"We don't have any plan yet (to merge banks), we're currently
\nchecking the condition of each bank ... We have appointed a
\nconsultant for this job,\" he told reporters.<\/p>\n
\"We don't have any target (for bank merger),\" he added.<\/p>\n
In addition to four state banks, the government, via the
\nIndonesian Bank Restructuring Agency (IBRA), controls majority
\nownership in 11 private banks after the government financed the
\nbulk of the cost to recapitalize the banks.<\/p>\n
Bank Indonesia Governor Sjahril Sabirin recently said during a
\nhearing session with the House of Representatives Commission IX
\nfor financial and development planning affairs that several banks
\nunder IBRA, a unit of the finance ministry, would not be able to
\nmeet the minimum 8 percent capital adequacy ratio (CAR)
\nrequirement by the end of this year.<\/p>\n
Sjahril called on IBRA to merge the weak banks with banks that
\npossess a higher CAR to avoid greater expenses incurred to the
\ngovernment.<\/p>\n
But Prijadi said that the bank mergers could not be solely
\nbased on their CAR condition.<\/p>\n
He said that other factors including liquidity and asset size
\nmust be considered.<\/p>\n
\"We will not merge two banks that can not look forward to good
\nsynergy,\" Prijadi said.<\/p>\n
\"Mergers are actually just one alternative to resolve (the
\nbanking) crisis,\" he added.<\/p>\n
Analysts have also said that bank mergers in Indonesia would
\nbe difficult due to resistance from founding shareholders and the
\ndiffering business culture of each bank.<\/p>\n
The government, so far, has only managed to merge eight banks,
\nand incorporated them into the publicly listed Bank Danamon,
\nwhich is majority owned by IBRA. There are currently around 150
\nbanks compared to 238 banks prior to the economic crisis that
\nbegan in mid-1997.<\/p>\n
Banks must meet the minimum 8 percent CAR requirement by the
\nend of this year or risk closure.<\/p>\n
The government can always step in to bail out banks which are
\nunable to meet the CAR requirement by recapitalizing the banks
\nagain, though this would be politically unpopular because it
\nwould require spending more tax-payers money, and economically
\ndamaging because it will add an extra burden to the already
\nstrained state budget.<\/p>\n
The government has injected around Rp 430 trillion worth of
\nbonds to help finance the recapitalization of 27 banks. The state
\nbudget covers the interest rate of the bonds.<\/p>\n
The current weakening in the exchange rate of the rupiah
\nagainst the U.S. dollar and the increasing interest rate of Bank
\nIndonesia SBI promissory notes have created problems to certain
\nbanks, including those under IBRA control.<\/p>\n
The increase in SBI rate has left some banks vulnerable to the
\nspread of negative interest rates, which is seen as one factor
\neroding banks' capital.(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-has-yet-to-decide-on-crucial-bank-merger-issue-1447893297",
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