Govt funds bank recapitalization

JAKARTA (JP): Domestic commercial banks with capital adequacy ratios (CAR) of between minus 25 percent and plus 4 percent will have to participate a recapitalization program in which the government will provide up to 80 percent of the required funds, Bank Indonesia Governor Sjahril Sabirin said on Tuesday.

Sjahril told reporters the recapitalization program would be based on the results of the due diligence audits currently being conducted on all banks. These are expected to be completed by the end of October.

"These audits will determine the financial status of each bank and the amount of capital needed for the recapitalization measures," he said after a meeting with President B.J. Habibie.

"The recapitalization program is intended to maintain the existence of banks which have prospects of surviving and developing further in order to accelerate the economic recovery. The measures are needed because many banks are now grossly undercapitalized."

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

Sjahril said that banks with CAR of below minus 25 percent would be given 30 days to inject fresh capital or improve their asset quality in order to qualify for the recapitalization program.

"If they fail to meet the deadline, the banks in this group will be taken care of by Bank Indonesia and the Indonesian Bank Restructuring Agency (IBRA)," he said.

IBRA was established early this year to restructure the country's ailing banks and help recover the central bank's massive liquidity support injected into troubled banks.

The financial authorities have required all banks to meet the minimum 4 percent CAR requirement by the end of this year, 8 percent by the end of 1999 and 10 percent by the end of 2000.

Sjahril said that banks joining the recapitalization program would be required to repay all Bank Indonesia liquidity support they had received.

The central bank has injected more than Rp 141 trillion (US$12.8 billion) in liquidity support to troubled banks since January. Fourteen banks were given until Sept. 21 to repay the debts, but only six had made the payment mostly by surrendering fixed assets.

Sjahril said that banks joining the recapitalization program would be required to inject fresh money or find new investors.

"For every rupiah of capital injected by the owners or other investors, the government will put up a maximum of four rupiah," he said.

The government, he added, would fund capital injections with bonds and that it would take equity in exchange for the capital.

"Banks therefore will have to issue convertible preferred shares in exchange for the bonds but these shares won't have voting rights.

"But the government can exercise its voting rights in strategic matters and if banks' business plans are not realized," he added.

Banks which join the recapitalization program will have to first submit a business plan within one month.

Sjahril said that the business plan must include details of how it would settle intra-group lending which had gone sour and reach the 20 percent legal lending limit by the end of December 1998.

The banks must also submit a quarterly plan over a three-year period which includes steps on how they would meet the 8 percent CAR requirement by the end of the business plan, he said.

He added that banks would be allowed to transfer their nonperforming loans and doubtful loans to IBRA with zero book value, as long as they do not cause their CAR level to drop below minus 25 percent.

He said the recovery of the nonperforming loans could be used to reclaim the government's stake in the banks.

Sjahril added that bank owners would also have the right to repurchase either part or all of the government's stake at any time within three years.

After three years, the government would sell any remaining stake to new investors within two years, Sjahril said.

Cash payment

Minister of Finance Bambang Subianto, who accompanied Sjahril at the news conference, said the government would insist the owners and ex-owners of suspended and nationalized banks repay their Bank Indonesia liquidity support in cash and not with fixed assets.

"Our main principle is a cash payment," Bambang said.

He urged businesspeople who have ceded various assets, claimed to be worth some Rp 206 trillion, including Rp 1.3 trillion in cash, to immediately come up with plans on how to sell the assets.

"I expect the plan to have been completed in one month," he added.

He said the preference for cash was prompted by differences in valuing the waived assets. The bank owners claimed their surrendered assets were worth Rp 206 trillion but IBRA's assessment put their value at only Rp 92.8 trillion.

Bambang also explained that the merger of four state-owned banks should be completed within two years and promised that it would not result in layoffs.

"The employees won't be displaced by the merger," he said.

The government plans to merge Bank Bumi Daya, Bank Exim, Bank Bapindo, and Bank Dagang Negara into a new state-owned Bank Mandiri.

The corporate business of Bank Rakyat Indonesia would also be integrated into the new entity, leaving this bank in charge of small and medium businesses.

The government is expected to announce a legal merger framework for the banks today.

The bad debts of the banks will be transferred to IBRA, and the government is expected to inject fresh capital into the new bank. (rei/prb)