Government to recapitalize 12 provincial banks

JAKARTA (JP): The government has agreed to recapitalize 12 provincial development banks in order to lift the banks' capital adequacy ratios (CAR) to eight percent.

Finance Minister Bambang Subianto said on Friday that the total cost of the move would be Rp 1.54 trillion (US$192.25 million).

"Provincial development banks have to be strengthened because they play an important role in supporting small-scale businesses throughout the country," he said at a signing ceremony with the 12 banks.

The government has said it will meet 80 percent of the cost of recapitalization, with the remaining 20 percent to be put forward by the 12 provincial administrations, which own the banks.

Indonesia has 27 provincial development banks, but Bambang said the remaining 15 banks had capital adequacy ratios above eight percent and did not need to be recapitalized.

The capital adequacy ratio is the ratio between capital and risk-weighted assets.

Some observers have called for the closure of all provincial development banks, charging that they operate as cashiers for the provincial administrations and not as true banks.

However, Bambang lambasted the banks' critics, stating emotionally: "Their opinion does not necessarily represent other people's view."

He argued that provincial development banks had a better understanding of the local areas they were set up to serve than banks based in Jakarta and other big cities.

Bambang said that the introduction of fresh capital would be accompanied by moves to rejuvenate the internal operations of the 12 banks, including efforts to develop a strategy to recover non- performing loans.

"The condition of their loan portfolios has caused us a headache. We demand a serious effort to improve the internal management of these 12 provincial banks," he said.

He explained that the banks would have to prepare themselves to assist the rapid economic growth expected in the country's outlying areas once a new bill granting greater provincial autonomy has been introduced.

Bank Indonesia Governor Sjahril Sabirin said the Asian Development Bank would provide technical assistance to help rectify internal problems in the banks.

Subarjo Joyosumarto, a central bank director, said that bad debts on the loan portfolios of the country's 27 provincial development banks stood at Rp 2.02 trillion at the end of February.

The director general for banking and financial institutions, Susiati B. Hirawan, said the Central Java development bank, which had a capital adequacy ratio of negative 30 percent, required Rp 486.8 billion in recapitalization funds, the largest amount given to any of the 12 banks.

The East Nusa Tenggara development bank, which had a capital adequacy ratio of 6.9 percent, required the least, at only Rp 600 million.

The other development banks to be recapitalized were those owned by the Jakarta administration, East Java, Bengkulu, West Nusa Tenggara, North Sulawesi, West Kalimantan, Lampung, Aceh, North Sumatra and Maluku.

The government has also agreed to provide 80 percent of the funds required to recapitalize nine private banks and all of the funds required to recapitalize seven state banks and 11 private banks taken under government control.

The total cost of the bank recapitalization program is expected to be Rp 500 trillion. The government will begin issuing bonds to fund the program next week. (rei)