Govt to recapitalize BCA, three other banks<\/p>\n
JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA)
\nwill convert the liquidity support provided by Bank Indonesia to
\nBank Central Asia (BCA) and three other banks nationalized in
\nAugust into government equity in an effort to recapitalize the
\nailing institutions.<\/p>\n
IBRA chairman Glenn S. Jusuf said in a media statement that
\nthe full or partial conversion of the liquidity support would
\nhelp the banks to meet the capital adequacy ratio (CAR)
\nrequirement of at least 4 percent by the end of this year.<\/p>\n
CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
\"We will hold a shareholders meeting in the near future to
\nconvert the liquidity support into equity, the magnitude of which
\nwill be decided later,\" Glenn said.<\/p>\n
He said the bad assets of the four banks would be transferred
\nto IBRA's asset management unit (AMU), which was established
\nearly this year to take over bad debts of the country's
\ncommercial banks.<\/p>\n
The government will issue bonds to the four banks to replace
\nthe excluded assets, he added.<\/p>\n
He explained that the recapitalization measure was part of
\npreparations to sell the banks either to foreign or local
\nstrategic investors.<\/p>\n
The management teams of the four banks would remain, he said,
\nbut additional management expertise would be provided if deemed
\nnecessary by IBRA.<\/p>\n
\"Investors with interest to put their capital in the banks are
\nexpected to provide technical and management assistance so that
\nthe banks can meet international banking operation standard.\"<\/p>\n
BCA, formerly the country's largest private bank, is obligated
\nto repay about Rp 35 trillion (US$3.3 billion) in liquidity
\nsupport and interest. The bank was taken over by the government
\nafter it amassed Bank Indonesia liquidity support equivalent to
\nmore than 500 percent of its capital.<\/p>\n
BCA was the financial arm of the Salim Group, the country's
\nlargest conglomerate, which has committed to handing over fixed
\nassets to the government to repay the bank's obligations.<\/p>\n
The three other banks taken over by the government are Bank
\nDanamon, Bank PDFCI and Bank Tiara.<\/p>\n
Under the IMF-sponsored banking reform program, a final
\nrestructuring and recapitalizing plan for the four banks has to
\nbe prepared by Sept. 30.<\/p>\n
Interest rate<\/p>\n
The government launched on Tuesday the country's bank
\nrestructurization and recapitalization plans.<\/p>\n
Domestic commercial banks which have a CAR level of between
\nminus 25 percent and plus 4 percent will have to participate the
\nrecapitalization program, in which the government would provide
\nup to 80 percent of the required capital by issuing bonds to the
\nbanks in exchange for equity participation in the banks.<\/p>\n
Banks joining the recapitalization program can also transfer
\nbad assets to AMU, in which the government will also issue bonds
\nfor the nonperforming loans.<\/p>\n
\"For every rupiah of capital injected by the owners or other
\ninvestors, the government will put up a maximum of our rupiah,\"
\nsaid Bank Indonesia Governor Sjahril Sabirin.<\/p>\n
However, a government source told The Jakarta Post on
\nWednesday that the bank recapitalization measures would be
\ndifficult to implement due to the current high interest rate
\nenvironment.<\/p>\n
He explained that bank owners and investors would be reluctant
\nto inject fresh money because it would be useless as their banks
\nwould continue to suffer negative spreads due to the high
\ninterest rates.<\/p>\n
\"The negative spread will only eat up the fresh capital
\ninjected into the banks in six months,\" he said.<\/p>\n
He urged the central bank to gradually lower the interest rate
\nor take a more extreme measure like Malaysia's capital control.<\/p>\n
The one-month bank time deposit rate is currently hovering at
\naround 65 percent, which is extremely costly for the banks.<\/p>\n
The monetary authority has taken a high interest rate policy
\nin an effort to curb inflation and stabilize the rupiah against
\nthe U.S. dollar, a measure prescribed by the IMF which arranged a
\nmultibillion dollar bailout package for the crisis-hit country.
\n(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-to-recapitalize-bca-three-other-banks-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}