Bank restructuring policy to focus on four measures

Bank restructuring policy to focus on four measures

JAKARTA (JP): The government has announced that the bank
restructuring strategy in the coming months will focus on four
measures -- recapitalization, liquidation of insolvent banks,
merger of state banks and recovering liquidity support.

"The October 16 approval by the House of the amendments to the
Banking Law of 1992 will facilitate the restructuring process by
strengthening the legal powers of the Indonesian Bank
Restructuring Agency (IBRA) and its Asset Management Unit (AMU),"
the government said in the latest supplementary memorandum of
economic and financial policies to the IMF.

It said banks deemed ineligible for recapitalization will be
quickly either closed, merged or sold after transferring their
non-performing assets to the AMU.

"We expect by the end of November to have transferred all
assets of the 10 banks frozen in April and August to the AMU and
to commence their liquidation shortly after," the memorandum
added.

Audits on a further 26 private banks currently subject to IBRA
control are expected to be completed soon and actions will be
taken to resolve these banks later this year, it said.

The government said loan decisions and treasury management of
the four state banks being merged would be placed under
centralized control by end-December although the full integration
of banking operations was expected to require about two years.

It added that IBRA had been engaged in discussions with the
former owners of several private banks with a view to producing a
financial settlement that yields repayment of liquidity support
extended by Bank Indonesia.

"While negotiations are well advanced in three of these cases,
issues remain to be resolved regarding some elements of the
proposals, especially the arrangements for the realization of
cash settlements. We expect satisfactory agreements on these
issues will be reached soon and approved by the Financial Sector
Action Committee by Oct.19," the government said.

It added that the central bank (Bank Indonesia), with
technical assistance from the IMF, is continuing a comprehensive
reform of its prudential regulations, and expects to issue by
mid-November new regulations on loan classification and loss
provisioning, including with respect to restructured loans.

"Moreover, further work is underway to amend regulations on
connected lending, liquidity management, off-balance sheet
activities. and foreign currency exposures, all of which will be
issued shortly," the memorandum said.

The government also reiterated the bank recapitalization
program, as announced on Sept. 29, for the potentially viable
private banks.

The ruling states that in order to participate in the program,
a bank must:

(1) Presently have a capital adequacy ratio, after full
provisioning for all impaired loans (based on the findings of
international auditors), of better than minus 25 percent but less
than 4 percent of assets.

(2) Inject new capital with the government also injecting
funds and taking a commensurate equity position.

(3) Make current all non-performing loans to related parties
and reduce their level to within the new prudential requirements.

(4) Prepare an acceptable business plan showing how it can
achieve medium-term viability and compliance with all Bank
Indonesia prudential regulations.

"Banks, for which audit results are already available have
been given one month to develop business plans acceptable to Bank
Indonesia, with recapitalization expected to be completed by the
end of the year," the memorandum said.

This is an ambitious but realistic time table. Other banks
will be subjected to a similar time table, once audit results
have been finalized, the government added. (rei/vin)