Bank merger to form RI's 10th-largest bank

Bank merger to form RI's 10th-largest bank

The Jakarta Post, Jakarta

The five private banks which will be merged by the end of this
year will create one of the country's 10th largest banks in terms
of assets, according to Chairman of the Indonesian Bank
Restructuring Agency (IBRA) Syafruddin Temenggung.

He was quoted by Antara as saying on Thursday that the new
bank would focus its lending on retail loans including
consumption loans and credit for small and medium-sized
enterprises.

He said that the bank would have a capital adequacy ratio
(CAR) of around 12 percent, which is higher than the minimum 8
percent level required by Bank Indonesia.

The relatively high CAR level should provide greater room for
the new bank to immediately lend its money to businesses.
Revitalizing the intermediary role of the banking sector is
crucial to the acceleration of economic growth.

The five banks are Bank Bali, Bank Universal, Bank Prima
Express, Bank Arthamedia and Bank Patriot, all of which have been
under the control of IBRA following the late 1990s banking crisis
which shook the industry to the core.

The agency, which has a mission to restructure the country's
ailing banking industry, plans to merge weak banks with the
strong in order to avoid closure. Out of the five banks, only
Bank Bali has a CAR level of more than 8 percent.

Under the merger plan, which would be finalized this month,
the four weak banks would be merged into the stronger Bank Bali.
The new entity will be named Bank Bali.

But the government via IBRA must inject some Rp 4.6 trillion
(US$517 million) worth of funds into Bank Bali so that its
capital condition would not deteriorate as a result of absorbing
the weaker banks.

The legal merger is expected to be completed at the end of
this month, while the operational merger will be completed at the
end of this year.

The Rp 4.5 trillion worth of funds will consist of Rp 2.8
trillion cash and Rp 1.8 trillion in the form of bonds.

The government will not issue new bonds, but it will come from
government bonds redeemed from recapitalized banks. The
government injected some Rp 430 trillion worth of bonds in the
late 1990s to help finance the recapitalization of several banks.
IBRA has managed to redeem some of the bonds by exchanging them
with loan assets under its control.

Meanwhile, Bank Indonesia senior deputy governor Anwar
Nasution said that the central bank had approved the bank merger
plan.

"The merger step will strengthen the financial structure of
the banks," he said.

The new bank will have some 7,000 staff. IBRA plans to lay off
around 950 from the current combined staff of the five banks of
some 8,000. The agency is providing some Rp 157 billion worth of
severance pay packages for the laid off employees.