Audits on banks to be unveiled in January

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)