Bank Danamon merger to be completed in May

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) expects to complete the legal merger of the publicly listed Bank Danamon with nine smaller banks by the end of May.

Safrullah Hadi Saleh, project manager of the merger program, said on Monday that the newly merged bank would have combined assets of Rp 44.5 trillion (US$6.22 billion), and would be expected to compete in the global market.

"The legal merger is expected to be completed by the end of May and the operational merger to be completed four months later," Safrullah told a press conference.

The nine private banks are publicly listed Bank Rama, Bank Tiara Asia, Bank Duta, Bank PDFCI and Bank Tamara, and non-listed Bank Pos, Bank Jaya, Bank Nusa Nasional, and Bank Risjad Salim.

Safrullah said that the merger of Bank Danamon and Bank PDFCI was completed in December.

He said that the merger of these two banks resulted in a new bank with a capital adequacy ratio (CAR) higher than the minimum 4 percent level required by the central bank.

He couldn't confirm the CAR level, but IBRA corporate secretary Christovita Wiloto said that Bank Danamon's CAR level was beyond the 8 percent level.

Safrullah said that the government had recapitalized Bank Danamon, Bank PDFCI and Bank Tiara in April and May of last year.

He said that the remaining seven private banks had a negative CAR level, but declined to disclose the figure.

The cost to recapitalize the seven banks was estimated to be between Rp 25 trillion and Rp 30 trillion.

Bank Danamon would be recapitalized for the second time shortly before the completion of the May 31 legal merger to absorb the remaining seven ailing private banks with negative CAR levels, Safrullah said.

He said that the merger team was still deliberating a rights issue or a private placement mechanism to facilitate Bank Danamon's second recapitalization program.

In August 1998, the government nationalized Bank Danamon, Bank Tiara and Bank PDFCI, and made a similar move to the remaining seven banks in May of last year.

The banks were taken over by the government after they breached the legal lending limit ruling and after their former owners failed to repay the government liquidity support injected into the banks.

Safrullah declined to give any estimate on how many bank workers would be laid off because of the merger process.

"It's still too early to say. We have yet to set a criteria (for the lay off program)," he said.

He said that the 10 banks currently employ more than 25,700 people.

Laying off bank employees is seen as a politically sensitive issue, which may become one factor that could inhibit the bank merger process.

But a source at IBRA who declined to be named claimed that many Bank Danamon employees were secretly interested in the forced retirement or lay off programs due to their attractive compensation packages.

Safrullah claimed that the merger team had gained positive support from the state apparatus including Bank Indonesia and the Capital Market Supervisory Agency.

He pointed out that instead of having to go to five divisions at the central bank, Bank Indonesia had set up a single division to allow the merger team to save time in processing the merger plan.

Meanwhile, Christovita said that IBRA had decided to include Bank Risjad Salim in the Bank Danamon merger plan to allow the initial public offering of Bank Central Asia (BCA) to be implemented as scheduled. Bank Risjad Salim was initially planned to be merged with Bank BCA.

IBRA plans to float some 30 percent of shares in Bank BCA sometime in February in a bid to raise Rp 3 trillion to help finance the government bank recapitalization program.

The government nationalized Bank BCA in August together with Bank Danamon.

The government has been criticized for proceeding slowly in the restructuring of the country's banking sector.

The government bank restructuring program was stalled last year following the outbreak of the Bank Bali scandal which has inflated the total cost of bank restructuring and recapitalization to more than Rp 500 trillion or around half of the country's gross domestic product. (rei)