Government sets to recapitalize BNI, BRI and BTN

JAKARTA (JP): The government will spend Rp 95.6 trillion (US$1.20 billion) to recapitalize Bank Negera Indonesia, Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN).

Assistant to the State Minister for Empowerment of State Enterprises Markus Permadi said on Tuesday the funds would be part of the Rp 233.4 trillion allocated to seven ailing state banks.

He said BNI, which is listed on the Jakarta Stock Exchange (JSX), would get Rp 52.8 trillion, BRI would get Rp 31.6 trillion and BTN would get Rp 11.2 trillion.

He said the remaining funds of Rp 137.8 trillion would be allocated to recapitalize the four other state banks, namely Bank Exim, Bank Dagang Negara, Bank Pembangunan Indonesia and Bank Bumi Daya.

The government will merge the four banks into the newly established Bank Mandiri as part of the country's bank restructuring program. The other three banks will still operate independently.

Markus said the Rp 95.6 trillion recapitalization funds earmarked for BNI, BRI and BTN were based on the government's outlook through September.

"These are the total estimated funds needed to recapitalize the three banks with assumption that the recapitalization is conducted before September (this year)," he said.

The recapitalization of the four banks under Bank Mandiri alone were projected to be completed by December, he added.

The seven state banks have been impeded by huge sums of nonperforming loans (NPLs) caused partly by unsound, politically directed lendings for well-connected business groups.

In order to help accelerate the state banks in the management of loan recovery process, the government would invite the participation of international banks, Markus said.

"The bid on the international bank to assist BNI is expected to be concluded this month. We have discussed the terms of reference with the World Bank and International Monetary Fund," he said.

BNI announced on Tuesday its 164 large-scale debtors faced difficulties in paying their debts to the bank.

Markus said some foreign banks, including the ING Barring Bank and German Commerce Bank, had expressed their interests in the bid.

"As for BRI and BTN, it is almost certain that they will get assistance from the Deutsche Bank," he said, adding that the German bank had earlier been appointed to assist Bank Mandiri.

He said the main responsibilities of the international bank were to assist the state banks to assess debtors' capabilities in returning debts and develop suitable restructuring packages.

Debt reductions or write-off facilities were not recommended by the government to be used by state banks to settle the bad debts, he added.

The state banks' debts restructuring program would also need the involvement of international financial advisors to assure the credibility of the restructuring process, he said.

He said financial advisors would help the ailing state banks prepare business plans.

The business plans should outline a detailed operational and financial restructuring plan which addresses a more focused business strategy, restructuring and downsizing alternatives, recapitalization steps, loan recovery improvements, risk management and upgrading the management information system, he said.

"Senior bank management will enter into new performance-based contracts with the ministry to assure the strict implementation of the business plans," he said.

In line with the restructuring program, the state banks were committed to begin to refocus business and streamline their operations accordingly until recapitalization, Markus said.

He said BNI would refocus on retail banks and medium-size corporations, BRI on small-size companies and BTN on the mortgage market.

The state banks were now bound in a newly introduced financial monitoring system, in which they were obliged to report their ongoing financial performance on weekly and monthly bases, he said.

The banks were also required to cut their overhead costs by, among others, reducing the number of staff, he added. (cst)