40 banks may be closed down on Feb. 27, Sjahril reveals
JAKARTA (JP): The government may close down some 40 private banks on Feb.27 in a bold effort to restructure the country's battered banking industry, Bank Indonesia Governor Sjahril Sabirin said on Tuesday.
Sjahril said that although government evaluation of the business plans submitted by the ailing banks had yet to be completed, the number of banks to be liquidated could be around that figure.
"We don't know yet the final figure because we're still finishing the evaluation of their business plans... but maybe it will be 40 banks or a little fewer," he said in response to questions raised by journalists at a press conference after his meeting with President B.J. Habibie.
Habibie announced last week that the government would close down banks with a capital adequacy ratio (CAR) of less than minus 25 percent on Feb.27 as these crippled institutions were beyond bailout.
The government has divided the country's more than 200 commercial banks into three categories based on their CAR level. Category A banks are those with a CAR of equal to or more than 4 percent, category B banks covering those with a CAR of between minus 25 percent and less than 4 percent and category C banks are those with a CAR of less than minus 25 percent.
The government has said that banks in category B are eligible to join the government bank recapitalization program, which is designed to bring the CAR to the minimum level of 4 percent.
CAR is the ratio between capital and risk-weighted assets.
Bank Indonesia director Soebardjo Djojosoemarto said last week that 38 banks were in the category C.
Sjahril, however, said that as of Monday there were several category C banks which had injected fresh capital to lift their status to that of category B banks.
He added, however, that category B banks might also risk liquidation if their business plans were rejected or if the owners failed to come up with the 20 percent recapitalization funding requirement.
The government has promised to provide up to 80 percent of the funding requirements.
The business plans include corporate programs to raise CAR to a minimum level of 8 percent by 2001, settle legal lending limits (excessive connected lendings) and Bank Indonesia liquidity support.
The management and owners of banks must also pass the 'fit and proper' test by the central bank to prevent people of questionable reputation and integrity from entering recapitalized banks.
Banks which have received approvals for their business plans would be given until April 21 to inject the 20 percent funding requirement.
The deadline for submitting the business plans passed on Monday.
Sjahril admitted that right until the deadline several bank owners were trying hard to lobby several ministers and Bank Indonesia officials not to enter their banks in the category liable to liquidation.
He stressed, however, that the criteria for bank liquidation was already clear-cut.
Sjahril again called on the public not to panic over the bank liquidation move as all deposits are guaranteed by the government.
The government is expected to publicly disclose the complete bank restructuring and recapitalization measures soon after the House of Representatives approves the 1999/2000 state-budget proposal, which allocates Rp 18 trillion for the recapitalization program, on Feb.26.
The government backed off from its earlier controversial decision to first recapitalize the privately-run Lippo Bank and Sanho Bank, together with 10 other provincial development banks, following strong criticisms from the House.
The decision was considered flawed as it was taken before the House approved the budget proposal.
In a government decree dated Feb.18, Lippo was to be given Rp 3.75 trillion of the Rp 4.29 trillion allocated for the first batch of 12 banks to be recapitalized.
Some suspected that Lippo received the lion's share of the recapitalization funding due to the owners' cozy relations with Habibie. (rei/prb)