Govt closes 38 banks, takes over seven others

Govt closes 38 banks, takes over seven others

JAKARTA (JP): The government announced on Saturday the closure
of 38 banks, including three owned by two sons and one daughter
of former president Soeharto, in a bid to clean up the country's
messy banking sector.

The long-awaited measure also includes the takeover of seven
banks and the recapitalization by the government of nine banks,
Minister of Finance Bambang Subianto said on Saturday.

He said that out of the country's 128 private domestic banks,
73 banks had a sufficient level of capital and would not need
recapitalization by the government.

"The government has closed 38 banks. All deposits, savings and
other accounts at the banks are fully guaranteed by the
government," he told a news conference after a meeting of senior
economic ministers and President B.J. Habibie at the State
Guesthouse to decide on the essential bank restructuring measure.

Bambang was accompanied by senior economic ministers and
officials from the World Bank, the Asian Development Bank and the
International Monetary Fund.

"We would like to assure the public that the measure will not
affect their deposits," added Bank Indonesia Governor Syahril
Sabirin.

The government has announced that depositors can start
withdrawing or transferring their money on Tuesday at five
appointed banks: Bank Negara Indonesia, Bank Rakyat Indonesia,
Bank Dagang Negara, Bank Central Asia and Bank Danamon.

The stern banking measure was initially to be announced on
Feb. 27 but was delayed at the last minute, raising speculation
that the government surrendered to pressure from well-connected
businesspeople who wanted to prevent their banks from being
liquidated.

The banks closed down on Saturday include publicly listed Bank
Bira, Bank Papan Sejahtera and Bank Mashill Utama. Small banks
Bank Yama, Bank Alfa and Bank Danahutama, which are linked to
former president Soeharto who quit in May last year in the wake
of the deepening economic crisis and massive student
demonstrations, were also closed down.

The World Bank welcomed the measure. "The government has
demonstrated its commitment to reform by staying the course and
in the end taking the necessary difficult decisions. For this it
is to be commended," said the bank's country director for
Indonesia, Dennis de Tray.

IMF Asia Pacific director Hubert Neiss concurred. "The IMF
fully supports the package and its implementation," he said.

"The IMF, together with the WB and the ADB, have given full
assistance to the technical work, trying to ensure that the
process remains objective, efficient and transparent," he added.

Bambang explained that the decision to take over the seven
banks was based on consideration of public interest to prevent
disruption in the payment system because the banks had a large
number of customers (more than 80,000 accounts) and extensive
branches.

"The banks will now be 100 percent owned by the government.
The old owners will no longer have any authority over the banks,"
he said.

He added, however, that owners who were indebted to the banks
would have to repay their debts.

The seven banks taken over by the government include publicly
listed Bank Duta and Bank Rama and nonlisted Bank Nusa Nasional,
which is owned by businessman Aburizal Bakrie, chairman of the
Indonesian Chamber of Commerce and Industry.

Banks to be recapitalized by the government include publicly
listed Bank Lippo, Bank Internasional Indonesia, Bank Bali, Bank
Niaga and Bank Universal.

The government plans to spend at least Rp 300 trillion (over
US$35 billion) to provide up to 80 percent of the financing for
the recapitalization of the banks through the issuance of bonds.
The remaining 20 percent has to be provided by the owners of the
banks by April 21 at the latest.

"If the banks fail to meet the deadline, they will be closed
down," said Bank Indonesia director Subardjo Djojosumarto in a
separate news conference.

The recapitalization program is aimed at boosting the banks'
capital adequacy ratio (CAR) to the minimum 4 percent
requirement.

CAR is the ratio between a bank's capital and risk-weighted
assets.

In order to be eligible to join the government
recapitalization program, banks have to have a CAR level of
between minus 25 percent and less than 4 percent. They also have
to submit an acceptable business plan. Bank managements and
owners must also pass Bank Indonesia's "fit and proper" test,
with criteria indicating the technical capability and moral
standard of the managements and owners.

"Banks which technically are eligible to join the
recapitalization program but have unfit owners had to go,"
Subardjo said.

Bambang said banks with a CAR level of 4 percent or more
totaled 74 banks, but one was still being examined as there had
been an ownerships reshuffle in the bank.

"If the owners pass the fit and proper test, the bank will be
included in A category," he said.

A category includes banks with a CAR level of 4 percent or
more.

Bambang explained that the banks with sufficient capital would
be closely supervised by the government as they would have to
submit business plans, and management and owners were also
obliged to undergo fit and proper tests.

He added that the government would also audit the funding
sources for raising the banks' status to A category.

"Loan financing will not be accepted," Subardjo said.

"All these requirements will have to be fulfilled by April 21,
and those failing will be closed down," he said, adding that the
government would review the banks every six months.

Bambang said that all bank owners would have to settle any
intergroup lendings made by their banks according to the
government ruling. (rei/prb)