Govt to merge four banks this year
Govt to merge four banks this year
The Jakarta Post, Jakarta
The government announced on Tuesday that it would merge four
banks including publicly listed Bank Universal, Bank Bali and
non-listed Bank Prima Express and Bank Patriot in a bid to
restructure the country's troubled banking industry.
State Minister for State Enterprises Laksamana Sukardi said
that the legal merger of the four recapitalized banks would take
place later in the year, but their operational merger would need
more time to prepare.
Although declining to name the surviving bank, Laksamana
canceled out Bank Patriot and Bank Prima Express.
"What's for sure is that Bank Patriot and Prima Express will
only become participants in the merger because the two banks are
relatively small (compared to the other two)," he said.
The four banks are part of the 11 private banks under the
control of the Indonesian Bank Restructuring Agency (IBRA).
The announcement came after the government completed a two-
week-long discussion with the visiting International Monetary
Fund mission team to draft the agenda of a new set of economic
reforms.
The government has been trying to merge this group of banks as
part of efforts to consolidate the domestic banking sector, which
has been criticized for progressing too slowly and hampering the
country's economic recovery.
The merger process is also seen as inevitable and a cost-
cutting measure to avoid banking closure.
The central bank has stipulated that the banks must have a
minimum capital adequacy ratio (CAR) of 8 percent by the end of
this year or risk closure.
CAR measures a bank's financial health by comparing its
capital against its risked weighted assets, including loans.
The government has recapitalized the banks in the wake of the
1997 financial crisis. But, due to deteriorating economic
conditions, the CAR level of the banks has started to weaken
again.
According to the November issue of Infobank monthly magazine,
Bank Bali, with total assets of around Rp 12.38 trillion, had a
CAR level of 11.9 percent as of June 2001.
Bank Universal, with total assets of Rp 12.74 trillion, had a
CAR level of 4.1 percent, while Bank Prima Express, with total
assets of Rp 1.61 trillion, had a CAR level of 6.5 percent.
Key financial indicators of Bank Patriot were not available.
Looking at previous merger deals, the new banking merger would
also have to involve massive layoffs.
Bank Universal, for instance, has some 2,500 employees.