Govt will unveil details of bank recapitalization

JAKARTA (JP): The government will announce the terms and conditions of bank recapitalization bond issues, including the coupon rate, on Thursday, according to Bank Indonesia Governor Sjahril Sabirin.

He said late on Monday evening that the coupon rate would likely be a combination of fixed and floating rates.

"We hope it will be an optimum level and acceptable to all parties," he told reporters following a meeting with four senior economic ministers, including Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita, Finance Minister Bambang Subianto, Minister of Industry and Trade Rahardi Ramelan and Minister of Cooperatives and Small Enterprises Adi Sasono.

The meeting was also attended by several prominent economists.

The move will initiate the government bank recapitalization program, in which a first group of eligible banks are expected to be recapitalized to reach the minimum 4 percent capital adequacy ratio (CAR) level by the end of January 1999.

The government has required the country's banking industry to reach a minimum CAR level of 4 percent by the end of this year. The recapitalization process is expected to be completed by March 1999.

The government plans to provide up to 80 percent of the recapitalization funding required, while bank owners will supply the remaining 20 percent.

The government contribution to the recapitalization will be in the form of long-term bonds issued to the recapitalized banks. The government will provide cash only for the bonds' coupons.

The government needs to provide a coupon rate high enough to attract investors to participate in the recapitalization program, but doing so will be difficult because of budget constraints.

Finance Minister Bambang Subianto announced recently that some Rp 257.5 trillion was needed to recapitalize 70 banks, including six large state banks. The cost could increase as more banks may join the government recapitalization program. The International Monetary Fund (IMF) said in a recent report that the estimated cost of restructuring would come to Rp 300 trillion (US$40 billion), or 29 percent of gross domestic product.

Banks eligible to join the government recapitalization program are those with CAR levels between minus 25 percent and less than 4 percent.

The banks must also submit business plans which contain measures to improve asset quality and profitability. They must also have a minimum CAR level of 8 percent by 2001 and make efforts to resolve trade finance arrears.

Sjahril said that 16 banks have submitted their business plans.

A review committee comprised of senior officials from the Central bank, the Finance Ministry, the Indonesian Bank Restructuring Agency, the IMF and the World Bank will have to give its approval to the business plans before the government agrees to provide the recapitalization funding.

In return for its participation, the government will receive preferred convertible shares issued by the recapitalized banks. The government will also not exercise its voting rights in the first three year period unless the banks fail to commit to their business plans.

The bank owners have the right to repurchase the government's stake in the recapitalized banks during the first three year period by finding new investors.

If the banks fail to exercise their rights, the government itself will find investors.

Sjahril also said that Finance Minister Bambang Subianto would summon the bank recapitalization team on Thursday for developments at banks not qualified to participate in the government program.

These banks have CAR levels of less than minus 25 percent. In order to qualify for the recapitalization program, the bank owners have to inject fresh money to increase CAR levels.

For banks unable or unwilling to participate in the recapitalization program, alternative resolution strategies, including mergers or bank closures by Bank Indonesia, are expected to be implemented by Jan. 31, 1999. (rei)