Audits on banks to be unveiled in January

JAKARTA (JP): The government will disclose the names of banks which have passed due diligence next month and decide upon what measures to take against those which do not qualify for the bank recapitalization program, Minister of Finance Bambang Subianto said here on Monday.

The minister said that disclosing the names of the banks would help to ensure transparency in the process of recapitalization.

"We will announce the names of the banks which have undergone due diligence at the beginning of January," Bambang told House of Representatives Commission VIII for finance and the state budget during a hearing on Monday.

He added that the government would also announce sanctions for banks which fail to meet the minimum requirements for recapitalization.

Bank experts have called on the government to announce the results of audits conducted on banks under a government-sponsored program. This, they said, was necessary to guide depositors and prevent rushes on relatively healthy banks.

A total of 150 out of 166 private and state banks have finished conducting due diligence to determine their eligibility for the recapitalization program. Audits have yet to be completed for the remaining 16 banks.

Seventy of the 150 banks will be recapitalized by the government.

Fifty-four banks have been exempted from the program, while the remaining 26 must inject fresh capital within 30 days if they wish to participate in the program.

The whole program will cost Rp 257.5 trillion (US$34.33 billion).

Banks must have a capital adequacy ratio of between minus 25 percent and plus 4 percent to qualify for the program. The capital adequacy ratio is the ratio between equity capital and risk weighted assets.

Under the program, the government will provide 80 percent of the funds required to recapitalize private and regional development banks. The money will be raised through the issuance of bonds. The remaining 20 percent of the required funds must be provided by the banks' owners.

Unlike for private banks, all state banks and provincial development banks will be recapitalized regardless of whether they meet the required capital adequacy ratio.

Bambang said the government would probably issue the bonds at a fixed interest rate linked to inflation.

This, he explained, would help to reduce the cost of financing the program which is scheduled to begin in the next fiscal year.

Additional finance for the program will come from the repayment of Bank Indonesia liquidity credits extended to banks currently under the care of the Indonesian Banking Restructuring Agency (IBRA).

The government will have an 80 percent share in all recapitalized domestic banks after the program has been completed, he said.

Bambang also said that the government through Bank Indonesia would set up a special team to investigate irregularities appearing in the books of local commercial banks. Irregularities which will be investigated include violation of the legal lending limit and marking up the book value of assets.

The minister said that the team would submit the results of the investigation to the attorney general. He said civil offenses would be settled by imposing fines, but warned that violations of many of the regulations were classified as criminal offenses and came with harsher sanctions.

Money raised through the fines would also be used to help finance the recapitalization program, he said.

Bambang said the practice of marking up the value of assets, both for investment and operational purposes, had inflicted a high cost on the economy.

This, he explained, was because banks could not recover the full value of bad loans guaranteed by collateral consisting of marked up assets worth less than the original loans taken out by offending companies. (das)