Govt to ease requirement for provincial banks

Govt to ease requirement for provincial banks

JAKARTA (JP): The government is considering modifying the
legal entity status of provincial administration-owned
development banks to enable investors to participate in their
recapitalization.

Minister of Finance Bambang Subianto said on Monday the
provincial government had to provide 20 percent of the funding
requirement for recapitalization of the banks, with the
government responsible for the remainder.

He expected investors in each province could participate in
the recapitalization program through share purchases.

Bambang spoke to reporters following a meeting with key
officials of the country's 27 regional development banks.

The government has completed financial audits on all of the
provincial development banks, in which 12 banks have capital
adequacy ratio (CAR) levels of more than 4 percent (category A),
11 banks have CARs of between less than 4 percent and minus 25
percent (B), and 4 banks have CAR of less than minus 25 percent
(C).

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

Banks in category A are exempted from the recapitalization
program designed to bring the CAR level to a minimum 4 percent by
the end of this year.

Banks in category B are eligible to join the government
recapitalization program, but category C institutions must be
recapitalized first by their owners to reach the desired CAR
level to qualify for the recapitalization program or run the risk
of liquidation.

However, the government provides an exemption for provincial
government-owned development banks because of their crucial role
in development.

Bambang said in a news conference recently that about Rp 1.3
trillion was needed to recapitalize the 15 regional development
banks.

It is small compared to the Rp 256.2 trillion funding
requirement to recapitalize 49 private banks in the B category
and six state-owned banks in the C category. The latter group
alone will absorb more than Rp 136 trillion.

The government will provide the 80 percent funding requirement
for the recapitalization program by issuing bonds in which the
banks will receive fresh funds through the bonds' coupon rates,
still to be decided by the government.

The bank recapitalization process is expected to be completed
before the end of March 1999.

Analysts say the government has to provide a high enough
coupon rate to attract investors to the program, considered a
high risk venture. (rei)