30% of banking industry still viable: Banker

JAKARTA (JP): Only 30 percent of the country's more than 200 banks have been able to weather the year-long economic crisis without liquidity support from the government, a noted banker said yesterday.

James T. Riady, a commissioner of Lippo Bank, said the banks' strong capital structures and prudent management had enabled them to maintain their footing despite the devastating financial crisis that had hit the industry.

"These banks have an average reserves requirement of 15 percent. Bank Indonesia's minimum requirement, however, is 5 percent," he told journalists.

James, also the vice chairman of the Lippo Group, said these "viable" banks could be used as a "platform" to kick start the cash-strapped real sector back into gear and help the government's bank rehabilitation program by absorbing the bad assets of troubled banks.

"The government has to recognize these banks," he said, adding that the public should know which banks were healthy.

He said the banks only needed less than a year before they could be ready to finance the real sector again through loans.

"The crisis is so devastating that banks with a weak financing structure will disappear because almost nothing could be done during the past 12 months."

Selling assets or shares to the market would be difficult for these banks at this stage, he said, while enticing new investors was being hampered by the low confidence in the economy.

He predicted it would take five to eight years before most of the country's ailing banks could be rehabilitated.

The banking sector has been badly hit by the rupiah's sharp plunge against the U.S. dollar. The rupiah's fall has multiplied the value of banks' foreign debts as well as the value of their dollar loans, which now mostly fall under the nonperforming category due to the real sector's bleak performance and their failure to make necessary credit risk assessments.

The industry's crisis has seen a drying out in overseas credit for local exporters to import their raw materials, while domestic financing is virtually nonexistent since local banks are now unable to risk any more nonperforming debts.

The government suspended three private banks and took over four others, including two of the country's largest banks, on Aug. 21 in an initial effort to restructure the ailing industry.

Bank Indonesia, the central bank, has reportedly injected more than Rp 140 trillion in liquidity support into troubled banks so far.

An official at the Indonesian Bank Restructuring Agency (IBRA) estimated Thursday that as much as 50 percent, or Rp 376 trillion, of the country's private domestic banks' outstanding loans were nonperforming.

He said at least Rp 187 trillion, the equivalent of 20.8 percent of the country's gross domestic product, was totally unrecoverable, making the process of rehabilitating the industry very difficult.

Experts, however, have urged the government to come up with a plan to help viable banks function in a way that they could start financing the real sector and open credit lines for local exporters.

The government plans to complete an international audit of every commercial bank in October, at which time it expects to launch another series of bank restructuring measures, including more closures to force banks to meet the minimum 4 percent capital adequacy ratio requirement by the end of the year. (rei)