Bank Mandiri drops plan to acquire BII

Tantri Yuliandini The Jakarta Post Jakarta

The government decided to drop earlier plans to merge state- owned Bank Mandiri with publicly listed Bank Internasional Indonesia (BII) citing improvement in the latter's financial condition.

State Minister for State Enterprises Laksamana Sukardi said on Tuesday that BII had been considered "healthy" after the government injected billions of dollars worth of hedge bonds earlier this month to replace bad loans owed by the bank's parent Sinar Mas Group.

"Our final decision is to make BII a stand-alone bank," he told a media conference.

He added that the new strategy was part of the government's plan to gain optimum results from divesting ownership in BII later on.

Laksamana's office oversees the Indonesian Bank Restructuring Agency (IBRA), which controls majority ownership in BII after it financed the bank's recapitalization program in the wake of the 1997 financial crisis.

The measure is part of the government's latest bank restructuring program.

Laksamana said to ensure that BII could meet the central bank's year-end minimum 8 percent capital adequacy ratio (CAR) requirement, the government would inject another Rp 2 trillion to Rp 3 trillion worth of bonds into the bank.

In a bid to save the ailing BII, the previous economics team had planned to merge the bank with Bank Mandiri by asking the latter to acquire the former.

But the new economics team instead injected US$1.05 billion and Rp 5 trillion ($472.8 million) in hedge bonds to clean up the bank's bad loans and transferred them to IBRA.

The loan transfer was made following concern that BII's CAR would plunge on the high possibility of the Sinar Mas loans turning bad.

Several analysts have earlier criticized the plan to force Bank Mandiri to acquire BII arguing that the state-owned bank itself was not in good condition.

Bank Mandiri had also recently expressed worries that the long and difficult process of the planned acquisition of BII would cause a delay in the state bank's initial public offering plan.

Bank Mandiri president E.C.W. Neloe said that his bank's top priority was to launch an IPO, not acquiring BII.

Neloe could not be reach for comment on the government's latest decision.