Closing down banks is last option: Sjahril

JAKARTA (JP): Indonesia's financial authority would not immediately liquidate banks which were not able to fulfill the minimum 4 percent capital adequacy ratio by the end of this year, Bank Indonesia Governor Sjahril Sabirin said yesterday.

"We will not take the decision to close down the banks abruptly. If inviting foreign investors will solve the problem, that option will be taken," he told reporters following the signing ceremony of the Asian Development Bank's US$1.5 billion loan aimed at strengthening the country's financial sector.

The government early this week slashed the minimum capital adequacy ratios of risk-weighted assets to 4 percent by end-1998, 8 percent by end-1999, and 10 percent by end-2000. The minimum CAR requirement to be fulfilled by the end of this year was previously set at 8 percent.

A senior government official has said that banks which might not be able to fulfill the 4 percent requirement based on the audits made by international auditors would have to be immediately closed down.

"We're not going to wait until the end of the year," he said.

The auditing process has been completed on six private banks which were effectively taken over by the Indonesian Bank Restructuring Agency (IBRA) in April, according to the document in the fourth agreement with the International Monetary Fund signed Thursday.

The document said that starting mid-July, the government would take action to "freeze, merge, recapitalize or liquidate the six banks for which audits have been completed".

IBRA in April took over the management of seven banks, because they had taken Bank Indonesia liquidity support amounting to more than 500 percent of their capital.

But one of the banks, the state-owned Bank Ekspor-Impor Indonesia (Exim Bank) was later excluded after promising to inject more capital.

The six publicly listed banks now under the control of IBRA are: Bank Danamon, Bank BDNI, Bank Umum Nasional, Bank Tiara Asia, Bank PDFCI and Modern Bank.

The IMF accord also said that audits on an additional 32 banks under the supervision of IBRA and 15 non-IBRA banks were scheduled to be completed by the end of next month.

Portfolio reviews for all other banks would be completed by the end of October, it added.

The document said that IBRA would continue to freeze additional banks that fail to meet solvency criteria.

It added that depositors' money would remain guaranteed by the government.

Sjahril admitted that recapitalizing the troubled banks through a merger process was difficult and would take a long time, adding that a more effective way was by inviting foreign investors.

By the end of next month, the government will introduce legislation amending the banking law to allow foreigners to control domestic banks, the IMF document said. (rei)