Bank Bali recapitalization plan delayed

JAKARTA (JP): The House of Representatives refused to approve on Monday the government's proposal to recapitalize publicly listed Bank Bali until a legal dispute with the bank's former owner has been settled.

Head of House Commission IX Sukowalujo Mintorahardjo expected the court to immediately settle the legal dispute so that a decision on the fate of Bank Bali could be taken.

"We can't approve the proposal to recapitalize Bank Bali until a legal certainty on the bank has been obtained," Sukowalujo said in conclusion of a hearing with Minister of Finance Bambang Sudibyo and chairman of the Indonesian Bank Restructuring Agency (IBRA) Cacuk Sudarijanto late on Monday.

He also appealed to both Rudy Ramli, the former owner and CEO of Bank Bali, on one side and IBRA and Bank Indonesia on the other to seek an out of court settlement.

The government is seeking approval to recapitalize Bank Bali at a cost of Rp 4.99 trillion (US$580.23 million), which will be financed by issuing bonds.

The recapitalization is expected to take place in August after a shareholders meeting scheduled for the end of this month.

But there have been fears that Rudy will in the end win the legal battle over Bank Bali, leaving the state with huge losses for having recapitalized the bank.

Bank Indonesia and IBRA decided in July last year to nationalize Bank Bali after the Ramli family failed to come up with the necessary cash requirement to recapitalize the bank.

Rudy filed a lawsuit against the decision, and the Jakarta Administrative Court surprisingly ruled that the nationalization of his bank was illegal.

Bank Indonesia and IBRA have since launched an appeal, which is still being processed.

The government said that if a decision on the recapitalization of Bank Bali was not reached by the end of this month, the recapitalization program would take place in September in order to wait until a June financial report on the bank.

Bambang said that the delay into September would increase the recapitalization cost to Rp 5.2 trillion.

But Bambang also said at the hearing session that the option to liquidate the bank or merge it with other banks was still open.

He admitted, however, that liquidating the bank would be costlier as the government would have to provide more than Rp 6.8 trillion in cash to guarantee the time deposits kept in the bank.

He also pointed out that the bank's 6,000 employees would loose their jobs and that could potentially create a new social problem.

Bambang also expected that the government would be able to reach an out of court settlement with the Ramli family before recapitalizing the bank.

The recapitalization of Bank Bali has been delayed several times.

The government was supposed to have recapitalized the bank last year but the program was delayed after the bank was hit by a high profile scandal dubbed "Baligate" which centered on the illegal transfer of some $80 million from the bank to a private firm linked to the then ruling Golkar Party ahead of the 1999 general election.

Bank Indonesia Governor Sjahril Sabirin is currently being detained at the Attorney General's Office over his alleged involvement in the scandal.

The government missed another deadline in May after Rudy filed a lawsuit.

Bank Bali is one of three banks which have not yet been recapitalized by the government. The other two are state Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN).

The government's bank recapitalization program is aimed at bringing the capital adequacy ratio (CAR) of the banks to the minimum 4 percent level.

CAR is the ratio between capital and risk weighted assets. The higher a bank's CAR, the better it is.

The capital condition of the country's banking sector deteriorated following the economic crisis that started in the middle of 1997.

The government initially targeted the CAR of the country's banking industry to reach the minimum 4 percent by the end of this month, and 8 percent by the end of 2001.

Cacuk said that Bank Bali was one of the country's "best" banks because it had not violated the legal lending limit ruling, and had not been aided by Bank Indonesia liquidity support.

He said that Bank Bali's CAR level last year was minus 69.9 percent.

The bank, with 280 branches and total assets of Rp 6.43 trillion, suffered a financial loss of Rp 2.09 trillion last year.(rei)