Large private banks come short on funds<\/p>\n
JAKARTA (JP): Bank Indonesia deputy governor Subarjo
\nJoyosumarto said on Tuesday owners of large private banks were
\nunable to come up with the 20 percent cash requirement to
\nrecapitalize their banks due to ballooning funding needs.<\/p>\n
He said the government would inject more than 80 percent of
\nthe necessary funding to recapitalize the banks.<\/p>\n
\"The government will end up controlling more than 80 percent
\nof the banks, but only in large banks. The smaller banks can
\nafford to provide their 20 percent portion.\"<\/p>\n
Under the country's bank recapitalization program, bank owners
\nwere supposed to come up with at least 20 percent of the
\nrecapitalization cost, with the government saying it would
\nfinance the remainder.<\/p>\n
However, the government later said it would support additional
\nfunding needs due to the inflated recapitalization cost.<\/p>\n
The government planned earlier to provide up to 80 percent
\nfunding for the recapitalization of eight private banks,
\nincluding the publicly listed Bank Lippo, Bank Internasional
\nIndonesia, Bank Universal, Bank Bali, Bank Niaga and non-listed
\nBank Bukopin, Bank Artha Media, Bank Prima Express and Bank
\nPatriot.<\/p>\n
But Biank Niaga owners were unable to provide the 20 percent
\nrecapitalization funding, prompting the government to take over
\nthe bank.<\/p>\n
Based on a due diligence audit made at the end of last year,
\nthe recapitalization cost for the nine banks was initially
\nestimated at Rp 21 trillion.<\/p>\n
But persisting negative interest rate spread, resulting from
\nthe higher interest rates given to depositors by the banks
\ncompared to the interest rates charged for their lending, had
\ninflated the recapitalization cost to Rp 34 trillion.<\/p>\n
Subarjo did not specify the exact number of the remaining
\neight private banks unable to provide the additional
\nrecapitalization cash requirement to maintain the 20 percent
\nfunding portion.<\/p>\n
Bank Universal, for instance, said on Monday that its majority
\nshareholder, PT Astra International, could not come up with the
\ninflated Rp 1 trillion necessary to meet the 20 percent
\nrecapitalization funding needs.<\/p>\n
As of December 1998, Astra had submitted Rp 477 billion or 20
\npercent of the recapitalization needs on the basis of its
\ncondition.<\/p>\n
\"Smaller banks like Bank Patriot have been able to provide the
\n20 percent funding portion,\" he said, referring to the non-listed
\nbanks.<\/p>\n
Subarjo said that although the government would have to
\nprovide recapitalization funding greater than the 80 percent
\ninitially expected, it was a necessary cost needed to fix the
\neconomy.<\/p>\n
\"We have to cough up more funding. This is the cost needed to
\nrecover our economy,\" he said.<\/p>\n
The recapitalization program is designed to lift the banks
\ncapital adequacy ratio (CAR) to the minimum 4 percent level. CAR
\nis the ratio between capital and risk-weighted assets.<\/p>\n
In addition to the nine private banks, the government would
\nprovide 100 percent financing for the recapitalization of seven
\nstate banks, and 11 banks which were taken over. The government
\nwould also provide 80 percent financing for the recapitalization
\nof 12 provincial development banks.<\/p>\n
The total cost of the recapitalization program is expected to
\nbe larger than the initial estimate of Rp 300 trillion.<\/p>\n
The government will issue bonds to finance the
\nrecapitalization program.<\/p>\n
Subarjo said the bonds issue for the recapitalization of the
\nnine private banks would begin this week.<\/p>\n
The bonds will carry two kinds of interest rates: fixed rate
\nand market rates linked to the interest rate of the 3-month Bank
\nIndonesia SBI promissory note. The variable rates will be applied
\nto lift bank's CAR from the negative territory to the zero level,
\nand the fixed rate to raise the CAR from zero to the minimum 4
\npercent level.<\/p>\n
Subarjo said the Indonesian Bank Restructuring Agency was
\nexpected to clinch a deal with a foreign investor next month to
\nbuy at least 20 percent of Bank Niaga.<\/p>\n
He said foreign investors which have expressed strong interest
\nin buying into Bank Niaga were ABN Amro Bank, GE Capital, New
\nBridge Capital and Global Alliance.<\/p>\n
Subarjo said foreign investors were expected to go on a
\nmassive buying spree of the country's banking industry after the
\nJune 7 general election.<\/p>\n
\"If the elections run smoothly, investors will come in much
\nearlier,\" he said.<\/p>\n
The U.K.-based Standard Chartered Bank recently bought 20
\npercent of Bank Bali, the first foreign foray into local banks
\nsince the financial crisis started in 1997. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/large-private-banks-come-short-on-funds-1447893297",
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