BI examines condition of 75 banks
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)