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)