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)