Deadline for bank capital requirement rescheduled

JAKARTA (JP): Bank Indonesia (BI) has agreed to postpone introducing a requirement that commercial banks hold a minimum capital of Rp 2 trillion for one year, until the end of 2000, following a request from the Private National Banking Association (Perbanas).

The association has also asked for tax incentives to speed up the ambitious plans aimed at consolidating 212 banks into less than 30. Of the 212 commercial banks, 146 are affiliated to Perbanas.

Iwan R. Prawiranata, a managing director of the central bank, told the media that the deadline had been extended to allow more time for banks "to make adequate preparations."

He added, however, that deadlines for minimum capital requirements of Rp 1 trillion and Rp 3 trillion would remain at the end of 1998 and 2003 respectively.

Previously, minimum capital requirements were Rp 150 billion for foreign exchange banks and Rp 50 billion for non-foreign exchange banks.

Iwan said that if the banks faced difficulties fulfilling the minimum capital requirement, they should either merge or seek new shareholders.

Ferry Y. Hartoyo, a banking analyst at PT Vickers Ballas Tamara, said that only 10 banks currently had over Rp 1 trillion in capital.

He explained that to fulfill the Rp 1 trillion requirement this year, most banks would have to merge. However, those with capital in excess of Rp 800 billion may instead choose to raise the additional Rp 200 million capital.

Banks already meeting the new capital requirements might still have to raise further capital to ensure that they also conform with the minimum capital-adequacy ratio (CAR) of 9 percent, due to high levels of bad debt in their portfolios.

BI has set the CAR at 9 percent for 1998, rising to 10 percent in 1999 and 12 percent in 2001

Banks with capital of less than Rp 500 billion, the majority of Indonesian banks, would have to merge with a number of other banks, Ferry said.

He then went on to point out that "it's a complex process merging five banks", adding that banks are currently jostling over suitable partners. "Solid banks are rare here," he said.

Several banks have officially announced their merger plans, however most of these incorporate banks of the same business group.

Mergers will have to continue so that banks can fulfill the Rp 2 trillion capital requirement by the end of 2003. The second wave of mergers will be easier though, since the first wave will by then have created larger and more stable banks.

Announcing further banking sector reforms, BI Governor Soedradjad Djiwandono told the House of Representatives early this week that new regulations allowing greater foreign ownership in the country's banks, including wholly-owned foreign banks, were being drafted. Ferry explained that the entry of foreign investors into the domestic banking industry was inevitable.

The economic crisis, which began in July, has highlighted the importance of, and urgency required in, consolidating the banking sector which is currently plagued by mounting bad debt, a lack of capital and weak management. (08)