BI examines condition of 75 banks

JAKARTA (JP): Bank Indonesia is currently examining the financial condition of some 75 commercial banks to decide on their fate, according to a senior official at the central bank.

Bank Indonesia banking supervisory official Ali Said Kasim said on Tuesday that if the banks' capital adequacy ratio (CAR) was below the minimum 4 percent requirement and if their non- performing loans (NPL) level was more than 35 percent, the banks would be put under special surveillance by the central bank and would later be transferred to the Indonesian Bank Restructuring Agency (IBRA).

Ali explained that it would be up to IBRA, an agency under the finance ministry, to decide whether to close down the banks, merge them with healthier banks or recapitalize them.

"We have assigned public accountants to check the 75 banks. If their CAR is below 4 percent and the NPL level is more than 35 percent, they will be surrendered to IBRA," he said on the sidelines of a meeting with the House of Representatives Commission IX on banking and the state budget.

He added that the 75 banks were the category-A banks which did not join the government-sponsored bank recapitalization program launched last year as their CAR levels were over 4 percent.

Many banking analysts have cautioned that the condition of category-A banks have continued to deteriorate due to slow progress in the debt restructuring program and the still unfavorable banking environment.

The government, via IBRA, could either close down the banks or take them over and recapitalize them.

The government will have to provide cash to pay depositors' funds if it opts to close down the banks as the government's blanket guarantee policy is still in place.

If the government decides to recapitalize the banks, the government will have to issue more bonds and thus further burden the already strained state budget.

The government has already issued more than Rp 406 trillion (US$47 billion) worth of bonds to finance the recapitalization program for four state-owned banks and more than 20 private banks.

The total has not included more than Rp 200 trillion worth of bonds to repay the creditors and depositors of closed banks under the blanket guarantee scheme.

The state budget covers the interest payable on the bonds.

The government has just completed the country's costly bank recapitalization program.

If the government decides to recapitalize the category-A banks, this would mean a second wave of recapitalization which would further heighten concerns over the level of public debt.

The government has closed down around 66 banks since the outset of the financial crisis in the middle of 1997.

There are currently around 161 banks operating in the country, including some 91 private banks.

IBRA chairman Cacuk Sudarijanto said last week that the agency was planning to consolidate the number of banks by 2005 as part of the effort to create a new banking landscape in the country.

He said that this new banking landscape would consist of around 15 "core banks" and 20 "focus banks."

Elsewhere, Ali also said that Bank Indonesia had stationed its officials in seven banks including Bank Central Asia (BCA), Bank Danamon, and the state-owned Bank Mandiri, Bank Negara Indonesia and Bank Rakyat Indonesia to ensure that the banks followed prudential banking rulings.

He didn't name the other two banks.

He explained that the central bank had assigned its officials to the seven banks because they had received huge sums from the government recapitalization fund.

He pointed out, as an example, that for Bank Mandiri alone the government had had to issue some Rp 170 trillion worth of bonds to recapitalize the bank.

"We have permanently stationed our supervisory officials in the seven banks because their recapitalization costs were huge," Ali said.

"We want to be closer to the banks so that what they are doing doesn't violate banking rulings," he added. (rei)