Govt will avoid closing more banks: BI director

Govt will avoid closing more banks: BI director

JAKARTA (JP): Financial authorities will try to avoid closing
more banks because existing banks can no longer cover the
country's economic activities, a central bank executive said here
on Tuesday.

Bank Indonesia director Subarjo Joyosumarto said the recent
closure of 38 banks resulted in an 18 percent drop in the
availability of banking services.

He said the drop in banking services was larger than the 13
percent decline in the country's gross domestic product last
year, meaning some 5 percent of the country's economic activities
were left without banking services.

"That's why we will try to avoid closing more banks," Subarjo
said on the sidelines of a banking seminar.

He added the government would encourage stronger banks to
acquire branches of the closed banks to bridge the gap in the
availability of banking services.

The government closed 38 local banks on March 13 as part of
its massive restructuring of the banking industry. The government
also took over seven banks and included nine banks in its
recapitalization program.

Seventy-three other local banks have a sufficient level of
capital to continue operating without joining the
recapitalization program.

Some analysts fear the government will close more banks if the
owners of the nine banks in the recapitalization program are
unable to raise their 20 percent of the funding required for
recapitalization by the April 21 deadline, or if the owners of
the other existing banks fail to pass the government's fit and
proper test.

Subarjo said the government would not close the nine private
banks in the recapitalization program because they were
considered among the country's healthy banks.

"The worst-case scenario would be the government was forced to
take over more banks."

The nine banks in the recapitalization program include
publicly listed Bank Lippo, Bank Niaga, Bank Internasional
Indonesia, Bank Universal and Bank Bali.

Subarjo added the government also would try to avoid closing
any of the 73 banks not in the recapitalization program. These
banks still are required to pass a fit and proper test to ensure
they will be able to maintain their level of capital.

Central bank governor Sjahril Sabirin said the owners of the
nine private banks in the recapitalization program had guaranteed
their ability to provide their 20 percent of recapitalization
funding.

However, he said that for joint venture banks, foreign
shareholders had to come up with fresh funds for recapitalization
by April 21 or risk having their banks closed.

Joint venture banks are not allowed to join the government's
bank recapitalization program in which the government provides up
to 80 percent of the required recapitalization funds.

Sources earlier said a number of joint venture banks could
face closure because their foreign shareholders were reluctant to
inject fresh funds into the banks.

Subarjo said the recapitalization program had resulted in the
gradual improvement of macroeconomic indicators, including the
strengthening of the rupiah against the US dollar.

He said improvements in the macroeconomic condition would
create a conducive environment for a much awaited cut in domestic
interest rates.

"I think the time is ripe for interest rates to decline."

He added, however, that a cut in interest rates should be
"done carefully" because it would affect the rupiah's exchange
rate and inflation.

He also said the central bank would lower the interest rates
of government-guaranteed bank time deposits.

The interest rate on the central bank's benchmark one-month
SBI promissory note is now 37.60 percent, down from over 40
percent two weeks ago. (rei)