Government to recapitalize more banks on Feb. 15

JAKARTA (JP): The government will launch the latest batches of bank recapitalizations on Feb. 15, March 7 and March 31, according to a senior official at the Ministry of Finance.

The official, who insisted on anonymity, said on Monday that some 15 banks could be included in the second round of bank recapitalization scheduled for the middle of this month.

"Whoever is ready will be included in the second batch," the source said, adding that state Bank Rakyat Indonesia would be among this group.

The source also said that banks which could not meet the timetable for recapitalization would be closed down.

The finance ministry has estimated that around 80 private and state banks would be recapitalized, requiring a total funding of Rp 300 trillion (US$33 billion).

The government disclosed last week that privately run Lippo Bank and Bank Sembada Artanugroho (Sanho), along with 10 regional development banks owned by provincial administrations, would be the first group of banks to be recapitalized.

A governmental decree signed by President B.J. Habibie and dated Jan. 18 stipulates that out of the Rp 4.29 trillion ($476 million) needed to recapitalize this first group of banks, Lippo Bank would get the largest share, Rp 3.75 trillion, while Sanho would receive Rp 18.46 billion, with the remaining funds to be divided among the regional banks.

The decision to select Lippo and Sanho for recapitalization drew strong criticism due to an alleged lack of transparency in the selection process, especially because Lippo was given the lion's share of the recapitalization funding. Some suspect that the cozy relationship between the owners of Lippo, the Riady family, and President B.J. Habibie played a role in their selection.

Bank Indonesia Governor Sjahril Sabirin, however, denied this allegation, arguing that Lippo had met the necessary requirements for recapitalization, including injecting some Rp 1 trillion in cash, or 20 percent of the total recapitalization funding, into its banks.

Under the government's bank recapitalization program, designed to bring banks' capital adequacy ratio (CAR) level to a minimum of 4 percent by the end of March, bank owners must provide 20 percent of the recapitalization funding while the government will provide the remaining 80 percent by issuing bonds.

An official at the Indonesian Bank Restructuring Agency (IBRA), however, questioned the procedures behind the Jan. 18 governmental decree, which was signed only a day before the Idul Fitri holiday.

"We regret that we were never consulted. Even the minister of finance didn't know of this decree before it was enacted," the IBRA executive said.

"There's no question that Lippo has met the necessary requirements. But what about Sanho? The morality of its owners is questionable. They shouldn't have passed the test of a bank's management required before recapitalization," he added.

According to the 1997 directory of the Indonesian Private Banks Association, Sanho is owned by Ganda Eka Handria, Lilywati Kadiman and Jerry (eds: one name).

The official at the Ministry of Finance stated that despite the issuance of the decree, the government had not completed the examination process of the first group of banks, a process which must be completed before recapitalization funds could be injected into the banks.

The investigation includes a suitable test of the banks' management, the banks' working plan to settle their legal lending limit problems and their working plan to repay Bank Indonesia's liquidity support loan.

"They also have to assure us that they are able to achieve a minimum CAR level of 8 percent by 2001," the source added.

CAR is the ratio between equity capital and risk-weighted assets.

"Based on these benchmarks, the banks will be divided into three categories: passing banks, conditionally passing and failing," the official said.

"All 12 of the banks in the first batch conditionally passed," the source said, adding that the government would inject the recapitalization funds only after the banks met all of the conditions.

The official also said that banks joining the recapitalization program had to be able to provide their 20 percent of the recapitalization funding in cash.

"We don't accept a combination of cash and fixed assets," the source said. (rei)