Govt signs MOU on recapitalization with nine banks

Govt signs MOU on recapitalization with nine banks

JAKARTA (JP): The government signed a memorandum of
understanding (MOU) on Thursday with majority owners of nine
private banks to join the government bank recapitalization
program in a bid to suppress fears that the program may not go as
scheduled.

Bank Indonesia director Subarjo Joyosumarto said the MOU bound
both the government and the banks to provide the recapitalization
funding requirement, and to implement other recapitalization
obligations.

"With this binding, there's no other way than for all to join
the recapitalization program," he told the owners and senior
management of the nine banks to be recapitalized at the signing
ceremony.

Under the plan, the government would provide up to 80 percent
of the recapitalization funding necessity, while the bank owners
would have to come up with a minimum 20 percent funding.

There are concerns, however, that the bank owners might not be
able to implement their obligations, particularly the minimum 20
percent funding requirement amid current economic difficulties.

"The MOU should be able to quell public doubt about the
recapitalization program," Subarjo said, adding that once the
banks are all recapitalized the country could have a healthy
banking system.

"The nine banks are currently the best banks in the country,"
he said.

The nine banks are the publicly listed Bank Internasional
Indonesia, Bank Lippo, Bank Universal, Bank Bali, Bank Niaga and
nonlisted Bank Bukopin, Bank Artha Media, Bank Prima Express and
Bank Patriot.

Subarjo said that the nonlisted banks have already deposited
their minimum 20 percent funding necessity in Bank Indonesia's
escrow account, while the publicly listed banks would a launch
rights issue.

He said that once details about the recapitalization contract
were completed, which is expected to be April 21 at the latest,
Bank Indonesia's governor and the minister of finance would sign
a recapitalization agreement with the nine banks.

The recapitalization contract includes details about things
that the recapitalized banks need to do and an agreement that the
banks would be under tight supervision by Bank Indonesia in
implementing their business plans.

The bank recapitalization program is an essential part of the
government bank restructuring program designed to clean up the
messy industry, a critical factor toward the country's economic
recovery.

Out of the country's 166 commercial banks, 38 private banks
were closed down by the government on March 13, and nine private
banks were selected to be recapitalized.

Subarjo said earlier on Tuesday that the country's financial
authority would avoid closing down more banks as the 38 banking
closures resulted in an 18 percent decline in financial services,
compared to only a 13 percent decline in the 1998 gross domestic
product.

The government will issue bonds to finance the
recapitalization program.

Subarjo said the interest rate of the bonds have yet to be
decided between a fixed rate of 3 percent and a market rate of 3
percent plus an inflation rate.

He stressed that despite an 80 percent government ownership in
the recapitalized banks, the government would not be deeply
involve in the banks' management except for "strategic matters".

"We won't be deeply involve as long as the banks are being run
prudently," he said. (rei)