Expert sees more bank closures this year
Tantri Yuliandini, The Jakarta Post, Jakarta
Bank Indonesia (BI) is likely to close down more poorly capitalized banks by the end of this year if their owners fail to come up with fresh money as the merger alternative is no longer feasible due time constraints, says senior banker Rijanto Sastroatmodjo.
"Mergers and acquisitions take time. They can't be completed in just one or two months," Riyanto said on the sidelines of a seminar.
The central bank has required all banks to have a minimum capital adequacy ratio (CAR) of 8 percent by the end of this year or risk closure.
CAR is the ratio between a bank's capital and its risk- weighted assets. The higher the CAR, the healthier the bank is.
Bank Indonesia has called on weaker banks to merge with stronger ones if their owners are unable to provide cash injections to improve their capital condition and avoid closure.
It is not clear how many banks have CARs of less than 8 percent, but reports earlier said that around 12 banks were in danger of being closed down.
The central bank recently shut down Unibank after it's CAR plunged into negative territory.
The government is also planning to merge a number of banks under the curatorship of the Indonesian Bank Restructuring Agency (IBRA) to avoid their closures.
IBRA has controlling stakes in around 11 private banks.
But the merger process has been progressing very slowly.
State Minister for State Enterprises Laksamana Sukardi, who oversees IBRA, said earlier that the government would push for the merger of recapitalized banks by the end of the year in an effort to avoid further liquidations.
He did not reveal any names but said that Bank Prima Express may be involved in a merger process. He also refused to rule out the possibility of further consolidation of previously merged banks such as Bank Mandiri and Bank Danamon, which once consisted of eight different banks.
Elsewhere, Rijanto also said that more funds would be needed if the government proceeded with plans to merge recapitalized banks, giving as an example the merger of Bank Danamon with eight weaker banks last year.
Bank Danamon's acquisition of eight smaller banks in the middle of last year resulted in the government issuing more than Rp 28 trillion (about US$ 2.6 billion) in bonds.
"The problem is whether the government or IBRA are willing to inject more funds? I think not because our state budget is in trouble as it is," he said.
Bank Indonesia had earlier said that it would not issue any more bonds for a second bank recapitalization round.
The government has already issued around Rp 430 trillion worth of bonds to finance the cost of recapitalizing various banks. The state budget now has to bear the onerous burden of paying the interest on the bonds.