Deadline for bank capital requirement rescheduled

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)