30% of banking industry still viable: Banker

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)