Govt to recapitalize BCA, three other banks
JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) will convert the liquidity support provided by Bank Indonesia to Bank Central Asia (BCA) and three other banks nationalized in August into government equity in an effort to recapitalize the ailing institutions.
IBRA chairman Glenn S. Jusuf said in a media statement that the full or partial conversion of the liquidity support would help the banks to meet the capital adequacy ratio (CAR) requirement of at least 4 percent by the end of this year.
CAR is the ratio between equity capital and risk-weighted assets.
"We will hold a shareholders meeting in the near future to convert the liquidity support into equity, the magnitude of which will be decided later," Glenn said.
He said the bad assets of the four banks would be transferred to IBRA's asset management unit (AMU), which was established early this year to take over bad debts of the country's commercial banks.
The government will issue bonds to the four banks to replace the excluded assets, he added.
He explained that the recapitalization measure was part of preparations to sell the banks either to foreign or local strategic investors.
The management teams of the four banks would remain, he said, but additional management expertise would be provided if deemed necessary by IBRA.
"Investors with interest to put their capital in the banks are expected to provide technical and management assistance so that the banks can meet international banking operation standard."
BCA, formerly the country's largest private bank, is obligated to repay about Rp 35 trillion (US$3.3 billion) in liquidity support and interest. The bank was taken over by the government after it amassed Bank Indonesia liquidity support equivalent to more than 500 percent of its capital.
BCA was the financial arm of the Salim Group, the country's largest conglomerate, which has committed to handing over fixed assets to the government to repay the bank's obligations.
The three other banks taken over by the government are Bank Danamon, Bank PDFCI and Bank Tiara.
Under the IMF-sponsored banking reform program, a final restructuring and recapitalizing plan for the four banks has to be prepared by Sept. 30.
Interest rate
The government launched on Tuesday the country's bank restructurization and recapitalization plans.
Domestic commercial banks which have a CAR level of between minus 25 percent and plus 4 percent will have to participate the recapitalization program, in which the government would provide up to 80 percent of the required capital by issuing bonds to the banks in exchange for equity participation in the banks.
Banks joining the recapitalization program can also transfer bad assets to AMU, in which the government will also issue bonds for the nonperforming loans.
"For every rupiah of capital injected by the owners or other investors, the government will put up a maximum of our rupiah," said Bank Indonesia Governor Sjahril Sabirin.
However, a government source told The Jakarta Post on Wednesday that the bank recapitalization measures would be difficult to implement due to the current high interest rate environment.
He explained that bank owners and investors would be reluctant to inject fresh money because it would be useless as their banks would continue to suffer negative spreads due to the high interest rates.
"The negative spread will only eat up the fresh capital injected into the banks in six months," he said.
He urged the central bank to gradually lower the interest rate or take a more extreme measure like Malaysia's capital control.
The one-month bank time deposit rate is currently hovering at around 65 percent, which is extremely costly for the banks.
The monetary authority has taken a high interest rate policy in an effort to curb inflation and stabilize the rupiah against the U.S. dollar, a measure prescribed by the IMF which arranged a multibillion dollar bailout package for the crisis-hit country. (rei)