Government to recapitalize 12 provincial banks

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)