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.