Mon, 08 Nov 1999

BNI expects recapitalization to start in December 1999

JAKARTA (JP): A further delay in the recapitalization of publicly listed Bank Negara Indonesia (Bank BNI) might result in a closure of its foreign branches, Widigdo Sukarman, the bank's president, has warned.

"We must start the recapitalization program in December, otherwise we risk the closure of our foreign branches," he told reporters on the sidelines of a seminar on Indonesia's economic problem on Friday.

He said foreign financial authorities, where the bank has its branches, would not tolerate banks to operate with negative capital.

BNI has six overseas branches in Singapore, Tokyo, Hong Kong, New York and the Cayman Islands.

The government-sponsored recapitalization program is designed to lift the Capital Adequacy Ratio (CAR) of banks to the 4 percent minimum level. CAR is the ratio between capital and risk weighted assets.

Widigdo said the recapitalization program of Bank BNI was delayed due to the country's political uncertainty in the run-up to the October presidential election, and the outbreak of the Bank Bali scandal in late July.

The recapitalization program of the bank was supposed to start in September, in which the government would issue bonds for the bank in three tranches: on Sept. 30, Dec. 31 and March 31, 1999. (Needs to be checked)

The International Monetary Fund (IMF) Asia Pacific director, Hubert Neiss, also expressed concern last week over the slow progress of the recapitalization program of state banks.

Based on the September 1999 audit result, Bank BNI would need some Rp 52.8 trillion in recapitalization funds to boost its CAR level to 4 percent.

Widigdo said the recapitalization funding needs would not further increase because the quality of some of its lending had improved, and the pressure of a negative interest spread had lessened following the sharp drop in domestic interest rates.

BNI launched a rights issue in July to raise funds from public shareholders for the recapitalization.

The rights issue raised only Rp 238 billion, leaving the government to foot the remainder by injecting bonds.

Widigdo said BNI, which is listed on the local stock exchange but still controlled by the state, should start the recapitalization program in December otherwise it would violate the ruling of the capital market supervisory agency on its rights issue.

"We must be recapitalized in two months time," he said, without giving further details.

The government has helped finance the recapitalization of a few private banks.

On state banks, the government has so far only started with the recapitalization of Bank Mandiri, in which the government issued Rp 103 trillion worth of bonds in October after it failed to meet the first deadline in July and second deadline in September.

Bank Mandiri needs more than Rp 137 trillion in recapitalization funding.


Widigdo said Bank BNI had also offered a chance to German- based Commerzbank to become its strategic partner to further enhance its future operations.

"We've talked to Commerzbank about it and they responded positively," he said during the launching of a cooperation with Global System for Mobile Communications (GSM) operator Telkomsel earlier in the day.

Nonetheless, he added, the government had so far no plans for BNI's divestment in the near future.

Widigdo said Commerzbank belonged to one of the top banks in Germany and as such, BNI would benefit from its expertise and network.

Commerzbank, founded in 1870, is one of the three largest private banks in Germany.

The bank focuses its business operation in Western Europe and North America and has over 50 outlets in more than 40 countries.

Corporate secretary and head of BNI's division for investor relations Sudirman said Commerzbank was not a stranger to BNI as they had cooperated before in the past.

In addition, he said, Commerzbank had been BNI's advisor in the fields of asset rehabilitation and risk management since last September.

He said aside from advising BNI, Commerzbank would also assist the state-owned bank to implement a business plan that was developed by Arthur Anderson consulting company.

"We have a six-month contract with them (Commerzbank) which can be extended if necessary," Sudirman explained.

He said Commerzbank had sent its team to work on BNI.

"So Commerzbank's people will have the opportunity to evaluate BNI's condition thoroughly and then decide whether they would like to invest in this bank," Sudirman said.

Sudirman said the government currently owns some 98 percent of BNI's shares after the bank conducted a rights issue in July.

"But they (the government) have yet to inject the funds; so its 98 percent on paper," he explained. (rei/03)