Bankers call on govt to extend CAR deadline

Bankers call on govt to extend CAR deadline

JAKARTA (JP): Bankers urged the government on Wednesday to set
back the end-of-December deadline for all commercial banks to
have a minimum 4 percent capital adequacy ratio (CAR) due to
their current difficulty in raising cash.

The chairman of the Association of Indonesian Private
Commercial Banks (Perbanas) Gunarni Soeworo said that it would be
arduous for bank owners to come up with as little as 20 percent
of the funding requirement for bank recapitalization.

She added that persuading foreign investors to enter the
banking sector would be just as hard on account of the
uncertainty of the political situation.

"Foreign investors are still watching the political
developments here," she said on the sidelines of a seminar on
banking.

Perbanas held a closed-door meeting to further discuss the
government's bank recapitalization program late on Wednesday.

The government has required all banks to have a minimum 4
percent CAR requirement 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.

The government initially set this year's minimum CAR level at
8 percent, but slashed it in half in the wake of the currency
crisis that has continued to devastate the banking industry.

Bank Indonesia director Subarjo Joyosumarto said at the
seminar that financial audits to check banks' capital condition
had almost been completed by late last month as scheduled except
on 26 debt-ridden banks currently in the hands of the Indonesian
Bank Restructuring Agency (IBRA).

Under the government's bank recapitalization program, banks
with CAR levels of between minus 25 percent and plus 4 percent
will have to be recapitalized under a system by which the
government would provide 80 percent of the funding through the
issuance of bonds.

Banks with CARs of less than minus 25 percent will be given
one month to improve their capital position to qualify for the
government funding scheme or face closure.

Analysts estimate the recapitalization funding will range
between 15 percent and 25 percent of the country's gross domestic
product.

"I think the government has to delay the minimum capital
requirement deadline or make some changes," said Rijanto
Sastroatmodjo, a Bank Umum Servitia commissioner, pointing out
that the financial audits for the recapitalization were based on
the financial conditions in March and that the state of the
economy had deteriorated since then.

He said that most of the country's large banks would not be
able to come up with the minimum 20 percent funding because of
the current tight liquidity situation.

"Only the small and probably some medium banks will qualify
for the recapitalization program," he said, pointing to the
relatively smaller amount of funding needed for their
recapitalization.

"Owners of big banks won't be able to participate (in the
recapitalization program)," he added.

Bank Bumi Putera president Agus Martowardojo concurred.

He said that bank owners and foreign investors would not be
interested in pouring their money in unless the government set a
high coupon rate for the bonds issued for the recapitalization.

He pointed out that bankers and investors would be encouraged
if the coupon rate was set at 3 percent above the benchmark
interest rate of Bank Indonesia's one-month promisory note.

"But this will be a very huge burden for the taxpayers," he
added.

The government will issue bonds to finance 80 percent of the
bank recapitalization program, in which the government will only
inject fresh money amounting to the bond coupon rate.

The banks will have to provide the government with nonvoting
shares for the bonds, which will be redeemable by the bank owners
in three years or sold on to new investors before the government
takes over.

The government has yet to decide the coupon rate.

Bank owners had earlier proposed an injection of fixed assets
to boost their capital condition, but this was apparently
rejected by the central bank.

"We want cash. Without that what's the use of
recapitalization," Bank Indonesia Governor Sjahril Sabirin
demanded. (rei)