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)