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.