Bank Mandiri's overseas operations face closure

JAKARTA (JP): State-owned Bank Mandiri is in danger of losing its overseas operations if its financial status does not improve in the near future, Bank Indonesia Deputy Governor Subardjo Joyosumarto said on Friday.

Subarjo said monetary authorities in the United States, Hong Kong, Singapore and Cayman Islands had threatened to close down Bank Mandiri's branches in their respective territories.

"If the branches are closed, it will destroy our banking image in the international market. That's why we have to recapitalize Bank Mandiri by the end of December," Subardjo was quoted by Antara as saying.

He said Bank Indonesia had informed the relevant overseas monetary authorities about the government's plan to recapitalize the bank so that they would not close down its branches.

The government and the House of Representatives agreed on Thursday night to proceed with the costly recapitalization by the end of this month to turn the bank into the black.

The cost of the delayed recapitalization of Bank Mandiri will rise to between Rp 178 trillion and Rp 180 trillion, from the initial estimate of Rp 137.8 trillion, according to a recent audit by Arthur Anderson.

The costly recapitalization aims to raise Bank Mandiri's capital adequacy ratio to the government-established 4 percent minimum.

Bank Indonesia's senior deputy governor Anwar Nasution revealed the rising cost of Bank Mandiri's recapitalization was as a result of the delay in its implementation, initially planned for July.

The delay itself, Anwar said, was precipitated by the complication of merging four former state banks -- Bank Bumi Daya, Bank Ekspor Impor, Bank Pembangunan Indonesia and Bank Dagang Negara -- into Bank Mandiri, and the lack of coordination between governmental offices.

Coordinating Minister of Economy and Finance Kwik Kian Gie said the government was committed to recapitalizing Bank Mandiri, despite the rising cost.

The government issued Rp 103 trillion worth of bonds for the first tranche of the recapitalization fund for Bank Mandiri on Oct. 13.

The government plans to issue new bonds to fill in the gaps in the bank's books by the end of December. Otherwise, the cost will rise further.

Subardjo said Bank Indonesia is ready to transfer all the needed funds to Bank Mandiri once the finance minister signs the government bonds to recapitalize the bank.

Bank Mandiri president Robby Djohan said the cost to recapitalize Bank Mandiri would still be lower than the cost of liquidating it.

If the government liquidates the bank, he said, it has to provide Rp 170.5 trillion in rupiah funding and $8 billion in foreign exchange to pay the bank's obligations.

In addition, the government has to pay legal costs, asset depreciation and severance payments for the bank's 17,000 employees.

Bank Mandiri is expected to control a domestic market share of 30 percent. (rid)