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)