Govt to recapitalize BCA, three other banks

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)