Bank Indonesia transfers ailing BII to IBRA

JAKARTA (JP): Bank Indonesian transferred the ailing publicly listed Bank International Indonesia (BII) to the Indonesian Bank Restructuring Agency (IBRA) as part of efforts to save the bank.

"BII is now under the supervision of IBRA with the status of 'bank under reinstatement' effective July 13," the central bank and IBRA said in a joint statement late on Friday.

The statement said that the transfer was a follow-up action to restore BII through acquisition by the giant state Bank Mandiri.

The government announced the acquisition plan late last month.

The statement also said the transfer would allow IBRA to takeover the Sinar Mas loan from BII's books and to restructure it outside the bank.

IBRA is a government agency with a mandate to restructure bank non-performing loans.

"The transfer will enable IBRA to take over the Sinar Mas Group's loan from BII's books in accordance with administrative procedures," the statement said.

Sinar Mas -- BII's founding company -- owes the bank some US$1.3 billion in loans, which have turned sour.

There has been concern that unless IBRA takes over the Sinar Mas loan from BII, the bank would continue to be in serious trouble.

The Sinar Mas conglomerate has been trapped under huge debts, while many of its businesses have also been badly affected by the country's economic crisis and falling commodity prices.

Sinar Mas announced earlier this month that it could not fully pay the $65 million in interest on its loans to BII due on June 30.

IBRA has said that it would inject "recycled bonds" into BII to replace the Sinar Mas loan.

The Sinar Mas group also agreed to pledge assets worth around 145 percent of the loan in return for the IBRA guarantee.

As stated in the statement the acquisition by Bank Mandiri would not affect the existence of BII because the acquiring bank would only become one of the shareholders.

"BII will become a subsidiary of Bank Mandiri," the statement said.

It is still not clear when the acquisition will take place as Bank Mandiri has only recently started a due diligence process.

"The due diligence process will run for several months," the Bank Indonesia and IBRA joint statement said.

BII may have to be closed down if Bank Mandiri fails to acquire the bank as the former is unlikely to be able to meet the year-end minimum 8 percent capital adequacy ratio (CAR) requirement.

BII's CAR level currently stood at 6.75 percent.

CAR is the ratio between capital and risk-weighted assets. A higher CAR indicates a healthy bank.

The acquisition of BII by Bank Mandiri will also be a key test of government efforts to restructure the ailing domestic banking industry via a planned series of mergers. (03)