Banks remain unstable: Minister

Banks remain unstable: Minister

The Jakarta Post, Jakarta

The country's banking sector remains in a weak condition despite
the government's costly bailout program launched five years ago,
according to State Minister of National Development Planning Kwik
Kian Gie.

"After the costly effort on the part of the government to bail
them out, the condition of our banks is still far from healthy.

"The reason they're surviving is because of the 'subsidy'
they've enjoyed through the payment of interest and principal of
the recapitalization bonds they hold," Kwik told legislators on
Tuesday at a hearing with the House of Representatives Commission
IX on financial affairs.

He cited as an example state Bank Mandiri, the country's
largest bank, which as of September last year posted around Rp
5.1 trillion (about US$550 million) in net profit.

"But the profit was calculated after the government poured
some Rp 15.1 trillion into the bank during the same period in
interest payments for the recapitalization bonds held by
Mandiri," Kwik added.

The bank currently holds around Rp 140 trillion worth of
recapitalization bonds.

The government via the Indonesian Bank Restructuring Agency
(IBRA) issued some Rp 430 trillion worth of bonds to help finance
the recapitalization of several ailing banks. Each year, the
state budget pays a huge amount of interest to the recapitalized
banks that hold the bonds. This is the largest and costliest
bank bailout in the country's history.

The same applies to other recapitalized banks, including Bank
Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank
International Indonesia (BII), Bank Danamon, Bank Niaga and
others, Kwik went on.

Kwik's remarks are the latest criticism on how the huge
bailout has turned out to be fruitless, as improvement in the
banking sector remains slow.

IBRA is in charge of restructuring the banks to turn them into
financially healthy institutions. But as the agency's mandate is
coming to an end, most banks remain in an unhealthy condition.
The agency was set up in early 1998 and was to complete its job
by the end of 2004. However, there are now plans to dissolve IBRA
by August 2003.

Despite the fact that the intermediary role of the banks is on
a rising trend from time to time, it's pace has yet to match the
large costs to the country in bailing them out of trouble in the
first place.