Recapitalization 'to be successful'<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
\nThursday that the owners of 15 private national banks had pledged
\nto recapitalize their banks with their own resources.<\/p>\n
\"This means they will not have to join the government's bank
\nrecapitalization program in order to meet the minimum capital
\nrequirement of 4 percent,\" Sjahril told the House of
\nRepresentatives.<\/p>\n
He added that the owners of six other banks had committed
\nthemselves to injecting fresh money in order to be eligible to
\njoin the government recapitalization program.<\/p>\n
\"These bank owners are very enthusiastic... so we're
\noptimistic about the success of the program,\" he said at a
\nhearing with the House Commission VIII on finance and the state
\nbudget.<\/p>\n
Under the government bank recapitalization program, the
\ncountry's commercial banks are divided into three categories
\nbased on their capital adequacy ratio (CAR) conditions.<\/p>\n
CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
Banks with a CAR of at least 4 percent fall into category A,
\nwhich means that they do not have to join the recapitalization
\nprogram.<\/p>\n
The government has required all banks to meet the minimum 4
\npercent CAR requirement by the end of this year.<\/p>\n
Banks with CAR of between minus 25 percent and less than 4
\npercent come under category B, which makes them eligible to join
\nthe recapitalization program.<\/p>\n
Banks with CAR below minus 25 percent come under category C,
\nwhich means that they must inject fresh capital to reach
\ncategory B in order to be eligible.<\/p>\n
The government plans to provide up to 80 percent of the
\nfinancing needed for the recapitalization, while the remainder
\nhas to be provided by the bank owners.<\/p>\n
Bank Indonesia director Soebardjo Djojosoemarto said that the
\n15 banks had submitted business plans, which were being evaluated
\nby the government credit evaluation committee.<\/p>\n
\"The evaluation will last for two weeks, and if the plans are
\nconsidered viable enough, the banks will be given one month in
\nwhich to inject fresh money,\" he told reporters on the sidelines
\nof the hearing.<\/p>\n
He explained that of the country's 208 commercial banks, 10
\nforeign banks would not join the recapitalization program, and 34
\njoint venture banks would also use their own resources for the
\nrecapitalization step.<\/p>\n
He said that the remaining 164 banks had been audited.<\/p>\n
The bank recapitalization program is an essential part of the
\ncountry's bank restructuring measures, which are seen as a
\nprecondition for the country's economic recovery.<\/p>\n
There have been worries that the recapitalization program may
\nnot go as planned due to various reasons including the inability
\nof many banks to provide the 20 percent financing amid current
\ntight liquidity conditions.<\/p>\n
There is also speculation that the government is divided over
\nwhether to pursue the recapitalization program as scheduled or
\ndelay it until the overall economic conditions improve, as this
\nweek's announcement on the details of the recapitalization
\nprogram has been delayed.<\/p>\n
\"We can't postpone this program. The risk is too big even
\nwith only a one month delay,\" Sjahril told the legislators.<\/p>\n
He pointed out that a delay would kill whatever confidence
\nstill remains in the economy. There would not be any economic
\nrecovery without recapitalizing the banks.<\/p>\n
He said that final details were currently under preparation,
\nand the government would make the announcement this month,
\npossibly next week.<\/p>\n
Separately, chairman of the Indonesian Private Banks
\nAssociation (Perbanas) Gunarni Soeworo said on Thursday that the
\nassociation had not asked President B.J. Habibie to delay the
\nrecapitalization program. She was speaking to reporters after
\nmeeting the President.<\/p>\n
Sjahril said that the state budget would fund the interest
\npayment on the bonds to be issued for financing the 80 percent
\nrecapitalization funding as pledged by the government.<\/p>\n
He declined to disclose the interest costs, but said that as a
\ncomparison, Thailand had allocated 3 percent of its GDP for the
\ninterest payment.<\/p>\n
Asked whether the authority would further close down banks
\nfailing to be recapitalized, he said: \"There are always
\npossibilities of further bank closures.\"<\/p>\n
But he added that such an option would be the last resort
\nafter persuading the banks to take some measures including the
\nmerger alternative.<\/p>\n
Meanwhile, Standard & Poor's said in a statement on Thursday
\nthat even as the government proceeded with its banking
\nrecapitalization program, the apparent near-term target of a 4
\npercent CAR for the sector would still leave the country's
\nbanking industry in a weak capital position compared to regional
\nand international benchmarks.<\/p>\n
It said that at the end of September 1998, the equity-to-
\nassets ratio of the Indonesian banking industry had fallen to
\n1.23 percent, adding that non-performing loans-to-total loans
\nwere expected to reach 65 percent at the end of this year. (rei)<\/p>",
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