Govt to inject Rp 4t into merged Bank Bali

The Jakarta Post, Jakarta

The government will inject some Rp 4 trillion (US$450 million) into Bank Bali after the bank is merged with four weaker banks, according to the Indonesian Bank Restructuring Agency (IBRA).

IBRA said in a statement on Wednesday that the publicly-listed Bank Bali would issue new shares at the end of September, while the government would act as the underwriter.

The capital injection is needed to keep Bank Bali's capital adequacy ratio (CAR) above the 8 percent minimum level set by the central bank.

CAR is the ratio between capital and risk-weighted assets. The higher the CAR, the healthier the bank is.

The government is planning to merge Bank Bali with four other banks, including Bank Universal, Bank Prima Express, Bank Arthamedia and Bank Patriot. The newly-merged bank will use the Bank Bali name.

Of the five banks, only Bank Bali has a relatively strong CAR level, while the others are poorly capitalized. As of March, Bank Patriot's CAR stood at 1 percent, while Bank Universal's and Bank Prima Express' CAR stood at minus 16.6 percent and minus 49.4 percent respectively.

Merging the weaker banks with Bank Bali will cause the latter's CAR level to plunge to below the minimum 8 percent level. That is why the government needs to recapitalize Bank Bali after the merger.

The five banks to be merged are among 11 private banks under the control of IBRA, which is in charge of leading the banks back into good financial shape before returning them to the private sector.

Merging local banks is seen as part of the effort to restructure the country's troubled banking industry.

A healthy banking sector is crucial to accelerating the country's economic recovery process.

IBRA was set up in 1998 to manage assets and loans it took over from the collapsed banking system after a $60 billion financial sector bailout following the 1997-1998 Asian financial crisis.