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)