Govt nationalizes BCA, Danamon

Govt nationalizes BCA, Danamon

JAKARTA (JP): The government decided yesterday to nationalize
the country's largest private bank, Bank Central Asia (BCA), in a
move to convince the public that it is serious about
restructuring the beleaguered banking sector.

Minister of Finance Bambang Subianto announced that the
government would also take over the ownership of Bank Danamon,
Bank Tiara Asia and Bank PDFCI.

In the same announcement, he said the government was
immediately suspending the operations of Bank Dagang Nasional
Indonesia (BDNI), Bank Umum Nasional (BUN) and Modern Bank,
pending their subsequent liquidation.

Bank Ekspor Impor Indonesia, Bank Dagang Negara, Bank Bumi
Daya and Bank Pembangunan Indonesia (Bapindo) -- all state banks
-- are also to be merged into a new entity, to be called Bank
Mandiri.

Bambang appealed to the public not to panic, stressing that
the government was guaranteeing all deposits.

"Owners of checking accounts, savings and deposits at BDNI,
BUN and Modern Bank should not panic. The government stands
behind them."

He said deposits at BDNI would be transferred to state Bank
Negara Indonesia and Bank Dagang Negara, while deposits at Modern
Bank would be handled by Bank Dagang Negara and deposits at BUN
would go to state Bank Rakyat Indonesia.

Employees of the three suspended banks will be retained for at
least two months to support the banks' management in the transfer
process. Their rights will be protected by existing rules.

All the suspended and nationalized banks, except BCA, are
listed on the Jakarta Stock Exchange.

The six publicly listed banks were taken over by the
Indonesian Bank Restructuring Agency (IBRA) in April after
receiving massive liquidity support from Bank Indonesia
equivalent to more than 500 percent of their capital.

IBRA said Danamon received Rp 18.62 trillion (US$1.6 billion)
in liquidity support as of the end of March, while BUN got Rp
6.63 trillion as of April 3, PDFCI received Rp 2.5 trillion and
Tiara got Rp 2.44 trillion.

Figures for BDNI and Modern Bank, however, were not available
since the two banks have yet to conduct a shareholders meeting.

BCA entered IBRA in June after it received a huge amount of
central bank liquidity support following a run on the bank after
the May 21 downfall of ex-president Soeharto, whose son and
daughter have a stake at the bank.

Fresh funds

Bambang said the government had received statements from the
owners or founders of BCA, Danamon, BDNI and BUN on their
willingness to provide fresh funds or assets to the banks.

But he reiterated that the amount of funds and assets should
cover all credits extended to their groups, including the central
bank's liquidity support.

He said the banks had until Sept. 21 to submit the fresh funds
or fixed assets.

BCA is controlled by Liem Sioe Liong, Indonesia's richest man
who owns the giant Salim Group. Danamon is owned by Usman
Admadjaja, while BDNI is controlled by Sjamsul Nursalim, chairman
of the Gadjah Tunggal Group. BUN is jointly owned by Mohammad
"Bob" Hasan, Soeharto's long-time golfing partner, and the Ongko
Group.

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said that if the banks failed to pay the
central bank, the government would seize their assets.

He cited examples of such assets, such as Bob Hasan's paper
manufacturer PT Kiani Kertas in the case of BUN, and Liem's car
making unit PT Indomobil, food giant PT Indofood Sukses Makmur or
cement maker PT Indocement Tunggal Prakarsa in the case of BCA.
Properties in the Sudirman central business district could be
seized in the case of BDNI.

"Former majority shareholders who have not agreed to negotiate
in good faith will be pursued by the Attorney General's office
immediately," he said.

Bambang said the banks' owners should absorb the losses for
loans channeled to their related business groups, adding that
BDNI's related-party lending was 85 percent of its portfolio,
while BUN's was 70 percent and Modern Bank's was 100 percent.

Modern Bank is controlled by property tycoon Samadikun
Hartono.

He added that non-performing loans at the frozen and
nationalized banks would be transferred to IBRA's asset
management unit.

The government will consider third party proposals to
recapitalize, merge and acquire PDFCI and Tiara. Otherwise, the
government plans to merge these two banks into Danamon.

Tiara is a medium-sized retail bank owned by the Ometraco
Group, while PDFCI is a corporate bank controlled by state
investment company PT Bahana Arta.

IBRA announced in June that the recapitalization of PDFCI and
Tiara would require at least Rp 3.2 trillion and Rp 2.89 trillion
in fresh funds respectively, including to pay back the central
bank's liquidity support and meet the minimum 4 percent capital
adequacy ratio requirement which must be fulfilled by the end of
this year.

Bambang said Danamon managed to avoid having its operations
frozen, partly because of its massive client base. The bank has
about two million depositors, compared to BDNI's 200,000 and
Modern's 40,000.

Bambang added that the seven banks whose operations were
frozen in April would be liquidated soon.

The seven banks are Bank Surya, Bank Subentra, Bank Kredit
Asia, Bank Pelita, Hokindo Bank, Deka Bank and Centris
International Bank.

The government plans to hire a major international financial
institution to assist it in merging its four state banks.

"The government plans to inject new capital to restore the
condition of the new merged entity and IBRA's asset management
unit will receive and assume responsibility of the non-performing
loans of the new bank," he said.

The comprehensive banking measures are part of the
International Monetary Fund-sponsored economic reform package to
restructure the country's ailing banking sector, a key factor to
revive the economy from its worst economic crisis in three
decades. (rei/prb)