Govt to pay $3b to recapitalize 8 banks

JAKARTA (JP): The government will inject Rp 24.5 trillion (US$3.06 billion) to recapitalize eight private banks, 75 percent more than the initial estimate of Rp 14 trillion, according to terms of a new government regulation.

"The government equity participation in the eight private banks was essential to help resolve the capital deficiency of the banks which could affect the health of the country's banking system," reads the regulation, signed by President B.J. Habibie on Monday but issued on Wednesday.

The decree stipulates that publicly listed Bank Internasional Indonesia will receive the largest government recapitalization funding of Rp 8.71 trillion.

Next is Bank Lippo (Rp 7.73 trillion), Bank Universal (Rp 4.59 trillion) and Bank Bali (Rp 2.34 trillion), with non-listed Bank Bukopin receiving Rp 380.80 billion, Bank Prima Express (Rp 615.40 billion), Bank Artha Media (Rp 130 billion) and Bank Patriot (Rp 52 billion).

The recapitalization officially starts on Friday.

Bank Indonesia deputy governor Subarjo Joyosumarto said on Wednesday that the government would have finance up to 90 percent of the total recapitalization cost of Bank Internasional Indonesia, Bank Lippo and Bank Universal because the owners could not come up with the necessary cash requirement due to greater funding needs than the initial estimation.

He also said government financing accounted for 83 percent of the recapitalization cost of Bank Bali.

The greater government participation is despite an earlier promise by its new foreign investor, Standard Chartered Bank of Britain, to finance 20 percent of the recapitalization cost.

"This (the greater government participation) is needed to restore the banks to help the recovery of the economy," he told reporters ahead of a meeting with other senior government officials on the recapitalization program.

Under the initial plan, owners of nine banks, including Bank Niaga, agreed to provide 20 percent of the recapitalization funding needs, with the government to provide the remainder.

The recapitalization program is aimed at boosting the banks capital adequacy ratio (CAR) to the minimum 4 percent level. CAR is the ratio between capital and risk-weighted assets.

But Subarjo said that the total recapitalization cost for the nine banks soared to Rp 27 trillion from the earlier estimate of Rp 21 trillion due to the persisting negative interest rate spread problem.

The initial cost estimate was based on the due diligence audit made in December 1998. But the banks' capital condition continued to deteriorate due to the lingering negative spread, where banks pay higher cost of funds than they charge for lending.

Bank Niaga's owners gave up the provision of the 20 percent recapitalization, prompting the government to take over the bank. The recapitalization of the bank was initially estimated at Rp 3.7 trillion, but increased to about Rp 7 trillion in a second audit made in late March.

Subarjo said on Tuesday that the government was expecting a foreign investor to enter Bank Niaga by next month.

He said interested foreign investors included ABN Amro Bank, GE Capital, New Bridge Capital, and Global Alliance.

Owners of the smaller non-listed banks, he said, were able to meet their 20 percent funding share, including the owner of Bank Artha Media, in which the government was only required to inject up to 74 percent of the total funding need.

Subarjo said the government would sell its stakes in the recapitalized banks after three years, with the former bank owners to receive priority to repurchase their shares.

He added that the government would welcome an earlier repurchase by the former owners.

The government will issue bonds to finance the recapitalization.

Finance minister Bambang Subianto is expected to announce the bond issue on Friday. Final preparations were still being made late Wednesday.

In addition to the eight private banks, the government will also provide 80 percent financing for the recapitalization of 12 provincial development banks.

The presidential decree stipulated that the 12 banks would receive government funding of Rp 1.23 trillion to lift their CAR level to 8 percent.

The government will provide 100 percent financing for the recapitalization of the country's seven state banks and 12 nationalized banks, including Bank Niaga.

Total recapitalization cost for these banks, including the eight private banks, was initially estimated at Rp 300 trillion, but many believe it will actually reach about Rp 500 trillion. (rei)