House approves bank merger fund<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
The House of Representatives finally approved late on Tuesday the
\ngovernment proposal to earmark between Rp 3 trillion and Rp 4
\ntrillion (US$412.37 million) to help finance the merger of five
\nbanks.<\/p>\n
The funds, to be taken from the government account in Bank
\nIndonesia called Account 519, will only be used to cover
\ndepositors money in the banks in case a rush occurs during the
\nmerger process.<\/p>\n
The government plans to merge five ailing banks this year,
\nnamely Bank Bali, Bank Universal, Bank Prima Express, Bank Artha
\nMedia and Bank Patriot. The banks have been put under the
\nsupervision of the Indonesian Bank Restructuring Agency (IBRA).<\/p>\n
The bank merger, which will create the country's fifth largest
\nbank, is one of the government major bank restructuring programs.<\/p>\n
Legislators initially opposed the use of Account 519 due to
\nconcerns that it would be a greater burden on the state budget
\nand fears of misuse as happened in the past. This has created
\nuncertainty about the crucial bank merger plan.<\/p>\n
The House gave its approval on the condition that the
\ngovernment conduct a thorough due diligence audit on the banks.<\/p>\n
Meanwhile, IBRA chairman I Putu Gede Ary Suta said that the
\nagency would inject \"recycled bonds\" to help improve the capital
\nadequacy ratio (CAR) of the newly-merged bank.<\/p>\n
CAR is the ratio between capital and risk-weighted assets.<\/p>\n
Recycled bonds are government bonds redeemed by IBRA from
\nrecapitalized banks. The government injected huge amount of
\nbonds to recapitalize several banks in the late 1990s.<\/p>\n
The CAR of the new bank would fall below the minimum
\nrequirement of 8 percent because only one of the five banks, Bank
\nBali, has a CAR level above 8 percent.<\/p>",
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