Ax to fall on ailing banks on Feb. 27

JAKARTA (JP): President B.J. Habibie said on Thursday that the government would close down a number of ailing banks on Feb. 27 as part of its program of cleaning up the country's crowded and weak banking industry.

The president did not name the banks but said that all private banks with a capital adequacy ratio (CAR) of less than minus 25 percent would be closed down.

He said on Thursday that this group of banks could no longer be rescued.

"The government will liquidate the banks in category C on February 27," he told reporters after meeting with the Indonesian Chamber of Commerce and Industry on Thursday. "This is not idle gossip. This is for real," he added.

The government has divided the country's some 200 commercial banks on the basis of their CAR level. Category A banks are those with a CAR equal to or above 4 percent, category B banks are those with a CAR of between less than 4 percent and minus 25 percent, and category C banks are those with a CAR of less than minus 25 percent.

CAR is the ratio between paid up capital and risk-weighted assets. Banks, which are eligible to join the government bank recapitalization program are those listed in category B.

However, Bank Indonesia Governor Sjahril Sabirin said separately on Thursday that the government has not set any specific date on when the bank closures would be announced.

He admitted that the announcement would be made some time after the 26th of February following approval of the government state budget proposal by the House of Representatives.

"I hope the public will not panic as all deposits are guaranteed by the government," he told reporters on the sidelines of a hearing on the bank recapitalization program with the House of Representatives Commission VIII on state budget and finance.

The state budget covers part of the government's bank recapitalization costs.

"We hope we can move fast with the liquidation measure," Bank Indonesia director Soebardjo Djojosoemarto told reporters on the sidelines of the hearing.

He said that 38 banks including seven state banks and several provincial development banks were in category C.

He said that the government would recapitalize the state banks and the provincial development banks regardless of their CAR status.

He added that some 66 banks were in category B, and 62 banks were in category A.

He also said that banks in category B would not necessarily be recapitalized as the banks had to meet several criteria including production of a feasible business plan which contains measures to lift the CAR level to 8 percent by 2001, settling the banks' outstanding loans, meeting a legal lending limit, and the repayment of Bank Indonesia liquidity support given to them.

The owners and the management must also pass the 'fit and proper' test.

"They must not be included in our blacklist of bad bankers," Soebardjo pointed out.

The last requirement to join the recapitalization program was that the owners had to come up with 20 percent of their funding needs in cash, as the government would provide up to 80 percent of the remaining funding by issuing bonds, he said.

He added that category B banks failing to meet the recapitalization requirements would also be closed down.

Soebardjo stressed that the government would have the same rights as the other shareholders in the recapitalized banks.

"We won't provide the recapitalization funds if we don't have the same rights," he said.

Several government officials have earlier said that the government's 80 percent share ownership in the recapitalized banks would entail non-voting rights. (rei/prb)