New funds help banks evade closure<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin
\nconfirmed on Friday that the owners of two ailing banks provided
\nfresh funds in a bid to meet the minimum 4 percent capital
\nadequacy ratio (CAR) requirement.<\/p>\n
Sjahril said he did not know if the provision of funds met the
\nCAR, which is the ratio between capital and risk-weighted assets.<\/p>\n
\"Today they injected capital... But I'll have to check it on
\nMonday,\" he said prior to a meeting with the House of
\nRepresentatives Commission IX on banking and the state budget.<\/p>\n
Sjahril declined to name the banks.<\/p>\n
Bank Indonesia warned earlier this month that owners of eight
\nbanks should improve their CAR by Jan. 20 or run the risk of
\nclosure.<\/p>\n
Two of the banks, however, failed to meet the deadline.<\/p>\n
The eight banks are part of the 74 private banks, generally
\nknown as \"A category\" banks, which were not closed down by the
\ngovernment in 1998 when the banking crisis deepened because they
\nmanaged to maintain a CAR level better than 4 percent.<\/p>\n
The government has closed 66 private banks and nationalized 13
\nsince the crisis started in the middle of 1997.<\/p>\n
It also sponsored the recapitalization of seven major private
\nbanks.<\/p>\n
However, it vowed to no longer provide financial assistance to
\nrecapitalize the A banks because of the lack of financing
\nresources.<\/p>\n
The CAR of the A banks deteriorated in 1999 as the negative
\ninterest rate spread problem persisted throughout the year.<\/p>\n
A bank theoretically suffers a negative spread problem if the
\ninterest rate it charged for its loans is less than the interest
\nit paid for time deposits. However, most Indonesian banks place
\ntheir funds in the central bank's low interest promissory notes
\ninstead of channeling them into loans. Many banks consider the
\nextension of loans to the country's weak industrial sector to be
\ntoo risky. (rei)<\/p>",
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