BI warns banks to up CAR or face the ax
JAKARTA (JP): Bank Indonesia (BI) senior deputy governor Anwar Nasution warned on Tuesday that private banks with a capital adequacy ratio (CAR) of less than 4 percent would risk closure if they failed to improve the level by the end of this month.
Anwar said bank owners would have to find the financial resources by themselves because the government would no longer provide assistance.
"If they could not meet the 4 percent CAR requirement, there's no other choice (than to close them). That's the rule," he said on the sidelines of a gathering of central bank officials and the domestic banking community.
"The bottom line is that banks with no potential should be closed down." However, he cautioned the public not to panic because deposits at all domestic banks were guaranteed by the government.
He declined to name the banks with CAR levels below the minimum requirement.
Anwar was referring to institutions among the 74 private banks which survived the first wave of closures as the banking crisis deepened in 1998.
Bank Indonesia deputy governor Subarjo Djojosumarto said late last year that eight banks had a CAR below the 4 percent level.
It is the ratio between a bank's equity capital and risk- weighted assets.
The government has closed down 66 private banks and nationalized 13 since the financial crisis started in the middle of 1997.
It has also sponsored the recapitalization of seven major private banks to boost their CAR to the 4 percent level.
Up to 80 percent of recapitalization costs for the banks were funded through government bonds.
The government allowed 74 banks, popularly called "A" category institutions, to continue operation without having to join the government recapitalization program because their CAR was above the 4 percent level.
But many believe some of the A category banks continue to suffer weakening capital due to the problem of negative interest rate spread last year.
Meanwhile, Bank Indonesia Governor Sjahril Sabirin said that the central bank did not need to be recapitalized because its capital level was still sufficient.
"There's no problem with Bank Indonesia's capital condition," he said, noting its capital as of May 1999 was Rp 2.7 trillion.
By law, the government must inject funds into the central bank should its capital fall below Rp 2 trillion.
Finance minister Bambang Sudibyo said earlier that the government would recapitalize Bank Indonesia in March following an audit report which indicated the central bank might be insolvent after it channeled some Rp 164.5 trillion in liquidity support to ailing banks in 1998.
But Sjahril said the central bank's financial condition was solid because the government issued bonds to cover the liquidity support.
According to the leaked audit report by the Supreme Audit Agency, Bank Indonesia may have violated procedures in disbursing Rp 80.25 trillion in liquidity credits to commercial banks.
Bank Indonesia earlier said the amount in question was Rp 51.7 trillion.
Sjahril again denied the fund discrepancy and said the massive liquidity support injected by the central bank was an unavoidable policy to keep domestic banks afloat and rescue the economy.
"Without the liquidity support, we would no longer have banks today," he said.
Sjahril blamed several government officials for making an issue of the liquidity support.
President Abdurrahman Wahid has urged the House of Representatives to dismiss Sjahril due to possible procedural violations in the channeling of the liquidity support.
House leaders have said that Sjahril could only be dismissed if there was a crime committed.
Sjahril has repeatedly said that he would not resign under pressure.
He also claimed that the central bank was successful under his leadership in strengthening the value of the rupiah to the U.S. dollar and stabilizing the domestic monetary condition.
Speculation has put Anwar and another Bank Indonesia deputy governor, Dono Iskandar, as the government's top preferences to replace Sjahril.
Anwar and Dono declined to comment. (rei)