Govt to ease repayment terms for ailing banks

Govt to ease repayment terms for ailing banks

JAKARTA (JP): Minister of Finance Bambang Subianto confirmed
on Friday the government would ease repayment terms for central
bank liquidity support used by troubled banks to stay afloat.

The minister indicated the government might relent on its
demand that owners of indebted banks repay in cash more than Rp
141 trillion (US$18.8 billion) in one year, the previously
announced time period.

Bambang declined to disclose the revised debt repayment terms.

"You just have to be patient. The discussions on the issue
aren't completed yet because there are various aspects that need
to be looked at and agreed upon."

Although the government's target is to quickly obtain an
optimum amount of payment in cash, he said "we would also
consider a reasonable repayment period given to the bank owners".

The minister said companies and other fixed assets surrendered
by the delinquent bank owners to the government in debt repayment
must also be kept solvent to prevent job losses.

"The target is to get a more acceptable amount in cash ... but
on the other hand we also have to consider a reasonable repayment
period," he told reporters following the 52nd anniversary of the
ministry.

Bambang's statement followed a report in the Oct. 27 edition
of the Asian Wall Street Journal that IMF Asia Pacific Director
Hubert Neiss objected to President B.J. Habibie's decision early
this month to force the country's biggest conglomerates to repay
the support in one year in cash.

Neiss reportedly urged "flexibility" in an Oct. 18 letter
addressed to Habibie. Although agreeing the repayment period
"should be as short as possible", he warned that "if all assets
were dumped in a fire sale under presently depressed economic
conditions, the return to the government would be very small".

Liquidity

Bank Indonesia funneled massive liquidity support beginning
early this year to help banks in meeting massive withdrawals by
panicked depositors and preventing a complete breakdown of the
banking system amid an absence of confidence.

Owners of troubled banks are not only required to immediately
repay the emergency funds injected by the central bank, but
should also return most of the loans channeled to their
affiliated companies.

Most of the institutions contravened the banking regulation
limiting the loans to intra-group companies to 20 percent of
their capital.

A Sept. 21 deadline was originally set for repayment of the
liquidity support.

But the Indonesian Bank Restructuring Agency (IBRA) agreed to
accept fixed assets of more than 120 companies ceded by the
tycoons to repay Rp 79.9 trillion in debts. Surrendering the
assets were the owners of the Salim Group, which controls the
country's largest private bank, Bank BCA; Gadjah Tunggal Group,
owner of the third largest bank, Bank BDNI, and Sudwikatmono,
former owner of liquidated Bank Surya and a cousin of former
president Soeharto.

Debts comprise mostly the emergency funds injected by the
central bank and monies that must be paid by the owners to bring
down their banks' legal lending limit (intra-group lending) to
the 20 percent maximum level.

The September agreement over the assets was immediately thrown
into confusion by some newspaper reports that the bank owners had
been given five years to settle their debts.

Habibie flatly denied the reports and announced on Oct.1,
that all the debts had to be repaid in cash within one year and
not within five years as some newspapers had reported.

Among those failing to meet the Sept. 21 deadline were timber
tycoon Mohamad "Bob" Hasan, co-owner of Bank Umum Nasional (BUN),
and property mogul Usman Admadjaja, owner of the second largest
private bank, Bank Danamon.

The government has closed down 26 commercial banks since
November, including BUN and BDNI, and nationalized BCA, Danamon
and two other institutions in August as the initial steps in the
restructuring plan. (rei)