Bankers oppose higher CAR requirement

Bankers oppose higher CAR requirement

The Jakarta Post, Jakarta

Bankers urged Bank Indonesia not to apply the minimum 12 percent
capital adequacy ratio (CAR) requirement yet as it would impede
banks from resuming their lending activities.

Chairwoman of the Indonesian Private Banks Association
(Perbanas) Gunarni Soeworo said on Wednesday that local banks
needed another three years to four years to be able to meet the
internationally accepted CAR standard.

She said that what was more important now was to take measures
to strengthen the banks so that they could resume lending
activities and help accelerate economic growth.

President of state-owned Bank Rakyat Indonesia (BRI)
concurred.

He said that BRI currently had a CAR level of around 13
percent, and if the central bank imposed the minimum 12 percent
CAR requirement, it would be hard for the bank to expand its
credit.

"The tough requirement must be delayed," he said.

CAR is the ratio between capital and risk-weighted assets
mainly credit. The higher the CAR, the healthier the bank is.

Currently, Bank Indonesia set a minimum CAR requirement of 8
percent. Raising this requirement would force banks to allocate
more funding to meet the capital requirement instead of
channeling them as loans to the business sector.

Bank Indonesia is planning to apply the 12 percent CAR
requirement soon, possibly next year, in a bid to meet the
international banking standard.

The late 1990s financial crisis had sent the CAR of many banks
plunging into negative territory, prompting the government to
launch a costly bailout program or to close some of the banks.

Under the central bank plan, banks which were not able to meet
the CAR requirement would have to either merge with stronger
banks or close.