House approves bank merger fund

The Jakarta Post, Jakarta

The House of Representatives finally approved late on Tuesday the government proposal to earmark between Rp 3 trillion and Rp 4 trillion (US$412.37 million) to help finance the merger of five banks.

The funds, to be taken from the government account in Bank Indonesia called Account 519, will only be used to cover depositors money in the banks in case a rush occurs during the merger process.

The government plans to merge five ailing banks this year, namely Bank Bali, Bank Universal, Bank Prima Express, Bank Artha Media and Bank Patriot. The banks have been put under the supervision of the Indonesian Bank Restructuring Agency (IBRA).

The bank merger, which will create the country's fifth largest bank, is one of the government major bank restructuring programs.

Legislators initially opposed the use of Account 519 due to concerns that it would be a greater burden on the state budget and fears of misuse as happened in the past. This has created uncertainty about the crucial bank merger plan.

The House gave its approval on the condition that the government conduct a thorough due diligence audit on the banks.

Meanwhile, IBRA chairman I Putu Gede Ary Suta said that the agency would inject "recycled bonds" to help improve the capital adequacy ratio (CAR) of the newly-merged bank.

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

Recycled bonds are government bonds redeemed by IBRA from recapitalized banks. The government injected huge amount of bonds to recapitalize several banks in the late 1990s.

The CAR of the new bank would fall below the minimum requirement of 8 percent because only one of the five banks, Bank Bali, has a CAR level above 8 percent.