Central Bank wants bad banks acquired

JAKARTA (JP): Bank Indonesia is seeking investors to take over financially troubled banks, says the central bank's governor, J. Soedradjad Djiwandono.

Soedradjad said that the central bank is also looking at the option of merging financially distressed banks into larger banks.

He did not name the troubled banks but said that such measures should be taken immediately to sort out their financial problems.

"It is part of the central bank's remedy program to deal with banks with a large amount of bad credits," Soedradjad told the media following a coordinating minister's meeting on economic, financial, trade and industrial affairs here on Monday.

Bad loans, which at present account for around 3 percent of the outstanding credits of domestic commercial banks, have seriously affected the financial performance of many banks.

Soedradjad said that financially troubled banks should be purged of their bad loans before being offered to new investors.

At least 27 banks have benefited from the central bank's remedy program -- 17 commercial banks, including Bank Pacific, Bank Yama and Bank Industri, and 10 secondary banks.

Soedradjad said that Bank Pacific and Bank Yama received assistance from state-owned Bank Negara Indonesia and Bank Industri from state-owned Bank Rakyat Indonesia.

However, he did not say whether this assistance also included an injection of fresh funds.

According to industry sources, at least 10 commercial banks have asked the central bank to find investors or partners to help them solve their difficulties.

Riyanto Sastroatmodjo, a former senior official of Bank Indonesia, said small banks are still having difficulties following the government's appeal to merge with other banks despite the central bank's assistance.

He said that healthy banks are generally reluctant to accept a merger offer from unsound banks, because this could affect their performance.

The government has issued a number of incentives to encourage mergers in the country's overcrowded banking industry. These include tax breaks related to the transfer of assets in the merger deal and an automatic promotion to foreign exchange banks. A bank which acquires the assets of merged partners is exempted from income tax on the transfer of goods in the deal, for instance.

However, most analysts say that these incentives are not enough because they don't cover many important aspects in the merger deal, like the treatment of non-performing loans. (hen)