Banks fail to meet CAR requirement
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said that several recapitalized banks might not be able to meet the minimum 8 percent capital adequacy ratio (CAR) requirement by the end of this year.
Sjahril recommended that the Indonesian Bank Restructuring Agency (IBRA) merge such banks with higher-CAR banks to avoid greater expense for the government.
"There are several (recapitalized) banks that may not be able to meet the 8 percent CAR requirement by the end of 2001," he told the House of Representatives' Commission IX on the state budget and banking during a hearing late on Wednesday.
Sjahril did not name the banks but he said he was optimistic that the four state banks, including Bank Mandiri, Bank BNI, Bank BRI and Bank BTN could meet the year-end CAR requirement as their CAR level was already over 8 percent.
The government has issued a massive Rp 430.4 trillion (US$42 billion) worth of bonds to help finance the recapitalization of 27 banks, including four state-owned banks, 11 private banks, and 12 smaller regional development banks.
The 11 private banks include the publicly-listed Bank Central Asia (BCA), Bank Danamon, Bank Niaga, Bank Lippo, Bank Internasional Indonesia, Bank Bali and Bank Universal, and non- listed Bank Prima Express, Bank Artha Media, Bank Patriot and Bank Bukopin.
Bank Indonesia has required all domestic banks to have CAR level of at least 8 percent by the end of this year or risk closure. This is part of the agreement with the International Monetary Fund.
The government bank recapitalization program lifted the CAR of the banks to beyond 4 percent. But as the banking environment remains unfavorable, particularly due to continued increases in interest rates and further falls in the value of the rupiah, some banks are facing difficulties in meeting the year-end CAR requirement.
Finance minister Prijadi Praptosuhardjo had earlier said that the current rising interest rates could spell trouble for domestic banks, which in turn could also force the government to recapitalize the banks for the second time in order to avoid bank closures.
But recapitalizing the banks for a second time would place an even greater burden on the already strained state budget, which covers the interest on bank recapitalization bonds. The interest cost of the bonds is estimated at around Rp 3 trillion per month, depending on the interest rate on Bank Indonesia SBI promissory notes. The interest rate on part of the bonds is linked to the rate on the SBI notes.
In a bid to help defend the ailing rupiah, which recently dropped to a 30-month low, Bank Indonesia raised the interest rate on its one-month SBI notes to 15.58 percent on Wednesday from 15.24 percent.
Since the financial crisis started in the middle of 1997, the government has cut the number of banks from 238 to 151 mostly by closing them down.
Elsewhere, Sjahril said that the non-performing loan (NPL) level of some banks was still quite high at more than 20 percent, compared to the year-end target of not more than 5 percent.
Sjahril also said that the asset structure of most of the recapitalized banks was still unbalanced due to the dominance of government bonds compared to lending.
He said that 40-70 percent of the asset structures of the state banks was in the form of government bonds.
He added that out of the 11 recapitalized private banks, three banks had an unbalanced asset structure with more than 50 percent being in the form of government bonds.
"This shows that the banking intermediary function is not running well and that their business is very sensitive to interest rate developments," Sjahril said, pointing out that the government recapitalization bonds carry a fixed interest rate of around 12 percent compared to the increasing interest rate on time deposits. (rei)