Bank recapitalization program to go ahead

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin stressed on Monday that the government would not delay its bank recapitalization program despite bankers' protests.

He said that bank owners should make a "great effort" to come up with fresh money to finance at least 20 percent of the recapitalization program.

"We have to make a great effort to implement the bank recapitalization program as scheduled," he told reporters following a meeting with several economic ministers.

The government has required all of the country's commercial banks to have a minimum capital adequacy ratio (CAR) of 4 percent by the end of this year, 8 percent by the end of 1999, and 10 percent by the end of 2000.

CAR is the ratio between equity capital and risk-weighted assets.

Under the recapitalization program, the government will provide 80 percent of the required funding.

Banks which are qualified to join the recapitalization program are those which have a CAR of between minus 25 percent and plus 4 percent.

Banks outside the above category have to inject fresh capital or improve their nonperforming assets to raise the CAR level to the meet qualifying standard.

The central bank has recently completed financial audits of most of the country's more than 200 commercial banks.

Sjahril has said that most of the banks have an acute capital deficiency condition but were qualified to join the recapitalization program.

Bankers last week expressed objections to the recapitalization program, citing difficulties in raising enough cash amid the current tight liquidity conditions.

The chairman of the Association of Indonesian Private Commercial Banks, Gunarni Soeworo, said that it would be arduous for bankers even to only come up with 20 percent of the financing requirement.

She added that inviting foreign investors to enter the banking sector would be hard because of uncertainty in the country's political situation.

Bank Indonesia officials had urged cash-strapped bankers to invite foreign investors to help finance the recapitalization program.

The government has revised the country's banking law, which allows 100 percent of foreign ownership in the banking industry.

Bankers also proposed that fixed assets be used for financing the recapitalization program. This was rejected by the central bank.

"We want cash. Without it what's the use of recapitalization," Sjahril said last week. (rei)