Fri, 14 Jan 2000

BI to decide soon on Category A banks' fate

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Thursday that the central bank was still undecided on whether to close private banks with a capital adequacy ratio (CAR) under the minimum 4 percent requirement.

He said that the decision on the fate of the banks with insufficient capital would be decided at the next monthly meeting of the central bank board of governors later this month.

"There are banks with a CAR below 4 percent, but how many there are and what to do with them I can't say right now. Whether they will be closing, I don't know yet because it (the decision) has to be made at the board of governors meeting," he said on the sidelines of the official installment of the new chairman of the Indonesian Bank Restructuring Agency (IBRA), Cacuk Sudarijanto, and other senior officials of the Ministry of Finance.

Sjahril was responding to earlier comments made by Bank Indonesia senior deputy governor Anwar Nasution who said that the central bank would close banks with insufficient capital if they failed to improve their CAR level by the end of this month.

Anwar said that the government would no longer provide any assistance to recapitalize the banks because the government did not have the necessary financial resources.

Anwar was referring to the 74 private banks, popularly called "A" category institutions, which survived the first wave of closures as the banking crisis deepened in 1998.

Bank Indonesia deputy governor Subarjo Joyosumarto said late last year that eight banks of the 74 had a CAR below 4 percent.

CAR is the ratio between a bank's equity capital and risk- weighted assets. Banks are now allowed to operate with a 4 percent CAR level, but after 2001 it must double to 8 percent.

Anwar's comments prompted several banks to announce that they have a sufficient capital level.

Under the new central bank law, Bank Indonesia has the authority to close banks.

Separately, finance minister Bambang Sudibyo said on Thursday that depositors should not panic over bank closures because the government blanket guarantee program was still in place.

"All savings and deposits are still guaranteed by the government. We have not yet changed the blanket guarantee program," he told the media.

He also said that the government preferred recapitalizing the undercapitalized banks rather than liquidating them.

"But the power to liquidate banks is in the hands of Bank Indonesia," he said, adding that Sjahril must also inform him of any plans to liquidate banks.

"Until now, the Bank Indonesia governor has not informed me on such a move," he said.

The A category banks did not join the government-sponsored recapitalization program because their CAR was higher than the 4 percent level.

They are mostly small banks compared to those which joined the government bank recapitalization program.

But their capital condition continued to deteriorate due to the persistently negative interest rate spread problem last year.

Since the outbreak of the financial crisis in the middle of 1997, the country's banking authorities have closed 66 private banks, nationalized 13 and recapitalized seven.

The government provided up to 80 percent of the recapitalizing costs for the private banks by issuing government bonds. (rei)