Bank restructuring cost estimated at $82b
JAKARTA (JP): Minister of Finance Bambang Subianto said on Wednesday the cost for restructuring and recapitalizing the country's battered banking sector was estimated at Rp 550 trillion (US$82.09 billion), or about 50 percent of gross domestic product.
He said the burden to the state budget in the next fiscal year would be much higher than the Rp 34 trillion allocated in the current 1999/2000 budget.
"The burden to the budget in the next fiscal year will be greater, but we're still calculating it," he told members of the House of Representatives Commission VIII for the state budget and finance.
Bambang said lessening the burden on the state budget depended on how successful the monetary authority was in lowering domestic interest rates and checking inflation.
"We have to curb inflation, whatever it takes," he said.
The central bank's benchmark interest rate dropped to 15.86 percent on Wednesday from more than 35 percent earlier this year. The interest rate on Bank Indonesia's three-month SBI promissory note also dropped, falling to 15.66 percent from 23.33 percent.
The central bank has allowed interest rates to fall on the back of a stronger rupiah and lower inflation.
The government is issuing bonds to finance the bank restructuring and recapitalization program. The bonds will carry a fixed interest rate and a floating rate linked to the interest rate on the three-month SBI note.
The government has so far issued Rp 157.61 trillion worth of bonds, of which Rp 103.8 trillion was allocated for the recapitalization of seven private banks, four nationalized banks and 12 provincial development banks. The remaining Rp 53.81 trillion will be used to repay money the government borrowed from the central bank to bail out banks last year.
The government plans further bond issues, Rp 233.25 trillion of which will be used to recapitalize the country's seven state banks.
The state budget will carry the cost of the bonds' interest rate, which in the current fiscal year is estimated at Rp 34 trillion. The Indonesian Bank Restructuring Agency (IBRA) is responsible for half of this amount.
Bambang said the burden to the state budget could decrease if IBRA succeeded in recovering a large portion of the some Rp 230 trillion in assets the agency took over from closed and nationalized banks.
IBRA currently controls some 200 companies pledged last year by owners of closed and nationalized banks to repay some Rp 100 trillion in debt to the government.
Bambang said IBRA would attempt to increase the value of the various companies surrendered by indebted bank owners in order to increase its revenue from the sale of the assets.
"But this will depend on the country's investment climate and investor perception of the companies," he said.
Bambang said the government also expected to recover its investment in recapitalized banks by increasing the market value of the banks through various measures, including management reshuffles.
"We can either expect dividend revenue from the banks or proceeds from the sale of our stakes in the banks," he said, pointing out that some of the banks are publicly listed.
Bambang said another source of revenue would be the restructuring of collateral assets of bad loans currently managed by IBRA.
The agency earlier said restructuring the nonperforming loans was the best way to maximize loan recovery, because the value of their total collateral was only about 30 percent of the total bad loans.
Bambang said bank restructuring costs could be further cut if the recapitalized banks succeeded in resolving bad loans under their responsibility.
The recapitalized banks have been assigned to restructure any bad loan under their control worth less than Rp 5 billion.
"Any decrease in bad loans and problem loans would reduce loan loss provisions. This would allow the recapitalized banks to gain bigger profits and consequently give higher dividends to the government," Bambang said.
"We have to maximize the revenue from these various sources or else will be in trouble next (fiscal) year," Bambang said.
Bank Mandiri
Separately, state Bank Mandiri president Robby Djohan said on Wednesday the bank expected to receive 60 percent of Rp 137.6 trillion in government recapitalization bonds later this month.
Robby said the remaining 20 percent would be received in September if the bank met the performance criteria set by the government.
He added that the remaining 20 percent would be received in December.
Bank Mandiri was formed through the merger of four state banks: Bank Ekspor Impor Indonesia, Bank Pembangunan Indonesia, Bank Bumi Daya and Bank Dagang Negara.
Robby said the government performance criteria included a certain level of efficiency, adding that to reach this target the bank planned to divest some 20 subsidiaries and cut its 26,000- strong workforce by 14,000.(rei)