Habibie says private banks should be reduced to 50

Habibie says private banks should be reduced to 50

JAKARTA (JP): President B.J. Habibie said on Tuesday he would
like to see the number of local private banks cut by about a
third to 50 through mergers and acquisitions.

"I have suggested to Perbanas (the Association of Private
National Banks) that the bank restructuring process lead to
cutting the number of the some 150 banks to 50 banks," Habibie
told the national conference of the Indonesian Chamber of
Commerce and Industry (Kadin).

He said not all of the 150 private banks -- out of more than
220 commercial banks, including joint ventures, foreign-owned,
state-owned and those owned by provincial governments -- would
likely to be able to put up the necessary funding for
recapitalization.

Bank recapitalization is one of the four measures in the
government's bank restructuring program. The others are cleaning
up bad credits, the liquidation of insolvent banks, merging state
banks and recovery of liquidity support.

All commercial banks are required to have a minimum capital
adequacy ratio (CAR) of 4 percent by the end of this year, 8
percent by the end of 1999, and 10 percent by the end of 2000.

CAR is the ratio between equity capital and risk-weighted
assets.

Under the recapitalization program, the government will
provide 80 percent of the required funding, while the remainder
has to be provided by the banks' owners.

Banks whose capital ratios are below minus 25 percent were
given one month from the end of September to inject fresh capital
in order to qualify for the government recapitalization program.

The government is expected to close some banks that don't meet
the required standards while others are set to be merged.

The government has already closed over 20 banks and
nationalized four others since the economic crisis hit Indonesia
last year.

"Since the recapitalization program will require hundreds of
trillions of rupiah, I have told the finance minister that I will
not approve the funding if the banks are not transparent, fully
honest with their problems. Everything should be done in a
transparent manner," Habibie said.

"I want to know the full details about the banking problems
before taking any decision on funding. I want them to open their
books completely."

Habibie reassured big business, both domestic and foreign,
that the government's drive to build up what is being called a
people's economy would not be done at the expense of
conglomerates.

"Large private businesses are always welcome as long as they
are not involved in monopolistic practices and do not obstruct
sound market competition," he said.

The President denied the notion that the development of the
people's economy would result in the government squandering money
on cooperatives and small enterprises.

He stressed that credits to cooperatives and small firms would
be extended in a careful manner and would be tightly supervised.

Kadin Chairman Aburizal Bakrie agreed that the government
still needed to side with smaller businesses to help them compete
in the global marketplace.

"Without access to funding and subsidized interest rates,
small businesses will die because they cannot compete with the
big ones," he said, adding that some 98 percent of the economy
was made up of small businesses.

The three-day conference at the Sahid Jaya hotel is being
attended by about 500 representatives of Kadin chapters.

Economist Sri Mulyani Indrawati was, however, less upbeat,
predicting that fewer banks would survive the recapitalization
requirement.

"I expect the program to end up with only 15 to 20 banks and
no more than 30 banks," she told reporters on the sidelines of
Kadin's five-yearly congress.

Sri Mulyani said the government could not, in all likelihood,
afford the recapitalization funding for all of the ailing banks
because of financial constraints.

The central bank has announced that the government will issue
bonds to finance the bank recapitalization, which is scheduled to
be completed by the end of January. (das/aly/prb)