Weak banks have 'no choice but to merge'<\/p>\n
BOGOR (JP): Financially weak banks have no choice but to merge
\nwith larger banks if they want to escape from being closed by the
\ngovernment, a senior bank executive said.<\/p>\n
Arwin Irsyad, Bank Danamon's president, said on Thursday that
\nmany banks would face difficulty in meeting the minimum capital
\nadequacy ratio (CAR) requirement by the end of this year.<\/p>\n
For most of them, raising fresh funds from existing
\nshareholders or new investors to improve their capital ratio
\nwould be quite difficult due to high investment risks in the
\nbanking industry, he added.<\/p>\n
\"It is therefore important for them to consider a merger plan
\nwith larger banks, or be closed by the government,\" he said to
\njournalists at a banking workshop.<\/p>\n
Indonesian banks should have a CAR of at least 8 percent by
\nthe end of this year to comply with the minimum capital level
\nimposed by Bank Indonesia.<\/p>\n
But the central bank indicated recently that at least 20 banks
\nwould not be able to meet the requirement, due to their worsening
\nbusiness activities.<\/p>\n
Most of the banks' shareholders were unlikely to be able to
\ninject fresh funds, while the government has ruled out the
\npossibility of bailing them out.<\/p>\n
\"Merging with other banks would therefore be the only
\nalternative left to enable them to survive,\" Arwin added.<\/p>\n
In addition to having at least an 8 percent CAR level, banks
\nwere also asked to reduce their non-performing loan (NPL) level
\nto a maximum of 5 percent by the end of this year.<\/p>\n
Arwin said that the central bank might allow the banks to have
\nan NPL of slight higher than 5 percent.<\/p>\n
\"But the tolerance given by the central bank to have an NPL of
\nmore than 5 percent would not be able to save them from the
\nthreat of closure,\" he said.<\/p>\n
According to Arwin, many banks still have an NPL of more than
\n18 percent.<\/p>\n
Arwin acknowledged that despite these financial problems, many
\nbank shareholders still refused to merge their banks due to the
\nfear of losing ownership and control.<\/p>\n
Bank analyst from Indosuez WI Carr Securities Mirza
\nAdityaswara said that given the reluctance of bank shareholders,
\nthe central bank should issue a special rule forcing the weak
\nbanks to merge.<\/p>\n
The government has issued around Rp 430 trillion worth of
\nbonds to finance the recapitalization of 27 banks, including four
\nstate-owned banks, several regional development banks, and the 11
\nprivate banks.<\/p>\n
The central bank has recently warned that several of banks
\nunder the control of the Indonesian Bank Restructuring Agency
\n(IBRA) might fail to meet the year-end CAR requirement, and urged
\nthe government to merge the banks to avoid the greater costs that
\nwould result from the bank closure alternative.<\/p>\n
But Finance Minister Prijadi Praptosuhardjo said that merging
\nbanks was not an easy process due to the complexity of the banks'
\nproblems. (05)<\/p>",
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