Government bank guarantee to stay in place: Sjahrir

Government bank guarantee to stay in place: Sjahrir

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin
reaffirmed on Monday that the government guarantee on depositors'
money at poorly capitalized banks would remain in place even if
the banks had to be closed down.

He said that the undercapitalized banks might have to be
closed down if the owners failed to come up with measures to
bring the capital adequacy ratio (CAR) up to the desired level.

"But whatever happens to the banks, the government guarantee
(on depositors' money) will remain in place," he told reporters
after meeting President B.J. Habibie.

Sjahril was referring to banks with a CAR level of less than
minus 25 percent, which are not eligible to join the government-
sponsored bank recapitalization program, and which have a greater
possibility of being liquidated.

The government recently announced that 26 privately-owned
banks fall into this category. The government has so far
declined to name the banks, arguing that financial audits on all
of the country's more than 200 commercial banks have yet to be
completed and that the negotiation process with the poorly
capitalized banks is still under way.

The local Pilar monthly magazine, however, disclosed their
names in its December issue, creating worries among the country's
monetary authorities that the report may trigger panic among
depositors. Officials claimed that Pilar could be sued for
leaking confidential documents.

According to Sjahril these banks had either to come up with
fresh money to bring the CAR level to the qualifying limit or be
merged in order to join the recapitalization program.

He added that several bank owners have just recently injected
fresh money into their banks to meet the qualification criteria
of the recapitalization program.

"Closing down the banks will be the last option," he said.

The government plans to finance 80 percent of the bank
recapitalization program, while the bank owners have to finance
the remaining 20 percent.

Banks eligible for the program are those with CAR levels of
between minus 25 percent and less than 4 percent.

The government has required all banks to have a minimum 4
percent CAR level by the end of this year. The process of
recapitalizing the banks is expected to be completed by March
1999.

The country's banking sector has been badly beaten by the 17-
month old economic crisis as soaring non-performing loans and
negative spread interest rates resulting from the tight liquidity
environment have eaten up banks' capital.

The first major blow for the industry came in November 1997
when the government closed down 16 troubled banks thus causing
confidence in the sector to tumble with widespread deposit
withdrawals by panicking depositors.

The government introduced the bank guarantee program in
January 1998 to prevent a systemic collapse of the banking
industry. The guarantee program is expected to be replaced by a
deposit insurance scheme in 2000.

Bank Indonesia has been financing this guarantee program, and
the government will repay over a five year period.

The central bank has so far injected some Rp 136 trillion in
liquidity support to help banks meet massive deposit withdrawals.
More than half of the amount was given to three of the country's
largest private banks: Bank BCA, Bank Danamon and Bank BDNI. The
bank owners have surrendered fixed assets to repay the loans.
(rei)