Bank restructuring cost estimated at $82b

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)