Banking expert predicts more mergers in 2000

JAKARTA (JP): Mergers, acquisitions and bank liquidations will continue this year, resulting in a healthier and more efficient banking industry, according to an expert.

A. Tony Prasetiantono, a noted economist from the Yogyakarta- based University of Gadjah Mada (UGM), said on Monday that the government would have to close down the remaining unhealthy banks to limit the already high cost of the bank recapitalization program.

"(More) bank liquidation is an option that can't be neglected," Tony said at the initiation of a banking sector survey conducted by Infobank monthly magazine.

"I heard that Bank Indonesia's thinking is moving in that direction (bank liquidation)," he added.

Tony said that banks whose capital adequacy ratios (CARs) had plunged should no longer be bailed out because doing so only creates more burdens for the state.

The government has financed between 80 percent and 100 percent of the recapitalization of the country's banking sector by issuing bonds. The state budget covers the interest rate of the bonds.

Tony also said that the environment is ripe for the government to close down more banks because the blanket guarantee is still in place and the public is better prepared psychologically.

"I don't think the public will panic if the government closes more banks now," he said.

Outgoing Bank Indonesia deputy governor Subarjo Joyosumarto said recently that seven banks have been under special surveillance by the banking authority because their CARs plunged to below the minimum 4 percent requirement.

He said that if the owners cannot recapitalize the banks, liquidation is an option.

The seven banks are among the A category banks which were not required to join the recapitalization program because their CARs was above 4 percent when the program was initiated in 1998.

But as the banking environment has continued to remain unfavorable, the banks' CARs have dropped below 4 percent.

Bank Indonesia has declined to name the seven banks.

The government has closed down some 78 banks since the crisis started in 1997. The closing of 16 banks in November 1997 created widespread panic that almost paralyzed the banking industry.

With the exception of publicly listed Bank Bali and state- owned Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN), most of the bank recapitalizations are complete.

The government delayed the recapitalization program of Bank Bali, scheduled for completion at the end of last month, because of the ongoing legal dispute with its former owner and CEO Rudy Ramli, who has protested the nationalization of his bank.

Finance Minister Bambang Sudibyo said that closing Bank Bali was an option if the government was still unable to recapitalize the bank in September.

Tony also said that mergers and acquisitions would be inevitable in the domestic banking industry.

He said that the current population of 162 banks was still "too many" for an efficient banking industry.

Indonesia had some 240 banks before the economic crisis.

"There are still too many banks covering the same sector," he said, pointing out that merging BRI with the 26 provincial banks was an option.

He also said that mergers and acquisitions would help the banking sector achieve the minimum 8 percent CAR level by the end of 2001 as required by the government.

Tony said that reviving market confidence was crucial for the banks to resume lending to businesses.

"If the concern over the current Cabinet composition remains... and if the President continues to make inconsistent remarks, I don't think banks will resume lending to the real sector," Tony said.

Meanwhile, Infobank said in its latest banking survey that the best performing 10 banks were all small banks with asset sizes below Rp 1 trillion.

The magazine said that the banks had survived the country's financial crisis because they have concentrated their lending to the retail and consumer sectors.

The monthly said that more banks were beginning to follow the same trend. (rei)