Economists welcome the merger of four state banks

Economists welcome the merger of four state banks

JAKARTA (JP): Economists and analysts hailed the government's
plan to merge four of the country's seven state-owned banks,
saying it was an important step toward improving the country's
ailing banking industry.

Economist Sri Mulyani Indrawati, I Nyoman Moena and Tjandra
Kartika separately told The Jakarta Post Wednesday that
the merger be an important breakthrough in preparing for tighter
competition in the banking industry in the coming years.

However they warned that the move would mean nothing if the
government, as shareholder, had no clear picture about the future
direction of the merged bank.

"The merger of the four is good but the objective of the merge
should be clearly defined first," said I Nyoman Moena, chairman
of the supervisory board of the National Private Bank Association
(Perbanas).

"The merger will bear no fruit, if goals are not precisely
set," he said.

Minister of Finance Mar'ie Muhammad said Wednesday that four
state banks -- Bank Pembangunan Indonesia, Bank Bumi Daya, Bank
Dagang Negara and Bank Ekspor Impor Indonesia -- would be merged
into a single bank.

The merger process should be completed by July this year.

Mar'ie said the government wanted to ensure that the new bank
formed by the four merged state-banks would be in a position to
compete globally when financial services were liberalized.

To achieve this the government would provide foreign banks of
international reputation with the opportunity to become
shareholders, Mar'ie said.

Economist Sri Mulyani Indrawati from the University of
Indonesia also said the government should clearly define the
purpose of the merger to ensure that the best result was
achieved.

"The government should set a clear goal for the merger. If the
purpose has been decided, the merger will be achieved more
easily," she said.

"The government should specifically define the goal of the
merger or else it will place another burden on the government.

"If the government forces the merger of the four banks now, I
think it could create another big banking calamity," she said.

Tjandra Kartika, head of research at Mashill Jaya Securities,
welcomed the government's merger plan but warned that poorly
managed banks should not be merged with other bad banks.

"If a bad bank merges with another bad bank, the merged bank
will not be a healthy one," he said.

The government said Bank Tabungan Negara would become a
subsidiary of the listed Bank Negara Indonesia, while Bank Rakyat
Indonesia will continue as an independent bank.

The minister said that foreign banks would be given the
opportunity to become partners in the merged bank.

On foreigners becoming shareholders in the merged bank, most
economists said Indonesian banks could not avoid foreign
ownership in the next millennium.

"But make sure that Indonesia has a legal framework before
foreign shareholders enter the country's banking system," Sri
Mulyani said.

Mar'ie also said the government would set up a credit
settlement company to manage the nonperforming loans of the four
merged banks.

"The new company will be responsible for liquidating the
nonperforming loans. However, the debt collection process will
continue and law enforcement will be fully executed."

Undermine

Other economists and analysts also hailed the merger measure
but said the government's commitment to cleaning up the banking
industry could be undermined by a court decision Tuesday to
suspend the liquidation of Bank Jakarta, one of the 16 banks
liquidated by the government on Nov. 1 last year.

The Jakarta Administrative Court said Tuesday that the
liquidation of Bank Jakarta, partly owned by President Soeharto's
half-brother Probosutedjo, would be held in abeyance until a suit
filed against the closure was decided.

"This development shows another setback in the country's
financial reform. The government wants to launch efforts to move
forward but others want to pull it back," one analyst, who
declined to be identified, said.

"This will surely serve as a bad precedence for any future
liquidations in the country's banking system," the analyst said.

Bank Jakarta and 15 other banks were closed on Nov. 1 under a
restructuring of the financial sector agreed upon by the
government and the International Monetary Fund (IMF).

Indonesia and the IMF had previously agreed on a reform-cum-
aid program under which Jakarta was to receive a financial
package worth more than US$30 billion. (aly)