Government to recapitalize more banks on Feb. 15

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)