House okays Bank Niaga recapitalization

JAKARTA (JP): After hours of heated debate, the House of Representatives finally approved late on Thursday to fund the increased costs for the recapitalization of publicly listed Bank Niaga.

The recapitalization costs have increased to Rp 9.46 trillion (US$1.12 billion) from the initial cost estimate of Rp 8.7 trillion, as approved by the House late in March.

"Recapitalizing Bank Niaga is less costly than the alternative of liquidating it. If we liquidate the bank, we'll have to provide Rp 12.23 trillion in cash," chairman of the Indonesian Bank Restructuring Agency (IBRA) Cacuk Sudarijanto told House Commission IX on banking and state budget during a presentation.

Under the country's bank recapitalization program, the government can issue bonds to finance its spending instead of making a direct cash injection. The state budget will cover the interest cost of the bonds.

Bank Niaga is among of the last group of banks to be recapitalized by the government this year. Recapitalizing the country's banks is crucial to the recovery the crisis-hit economy.

The session also was attended by Minister of Finance Bambang Sudibyo and top officials of Bank Niaga.

"Historically, Bank Niaga is a good bank... And it is important to note here that the bank has never breached the legal lending limit ruling," Cacuk added.

He explained that Bank Niaga's current troubles are a result of the financial crisis that sent most of the country's banks into technical bankruptcy in 1998.

Cacuk said that Bank Niaga would have a capital adequacy ratio (CAR) of around 8.3 percent after the recapitalization, compared to minus 122.6 percent in 1999.

However, he said that the bank will remain in the red this year with a projected net loss of Rp 284 billion, compared to a net loss of Rp 5.6 trillion in 1999.

He said that the bank would move into the black in 2001 with a projected net profit of Rp 241 billion, and Rp 299.5 billion in 2002.

IBRA, a unit of the finance ministry, nationalized Bank Niaga in 1999 after its owners failed to come up with the 20 percent cash requirement to help finance the recapitalization program by the initial deadline.

The government now owns 97.8 percent of the bank and the public holds the remaining 2.2 percent.

The publicly listed bank launched a rights issue last August as part of the recapitalization program, but the government postponed the program following disclosure of the high profile Bank Bali scandal and political uncertainty surrounding the election of a new president in October.

The purpose of the recapitalization program is to raise the bank's CAR above the minimum 4 percent requirement.

In March, the House approved the government's proposal to spend some Rp 8.7 trillion to recapitalize Bank Niaga. But the program was delayed again, causing the recapitalization costs to soar to Rp 9.46 trillion.

Several legislators initially rejected the government's proposal for a higher recapitalization budget.

"I think it's better to liquidate Bank Niaga. Why should we ask taxpayers to be burdened if the bank will still be in the red this year," said legislator Usman Ermulan of the Golkar Party.

Legislators also lambasted IBRA for providing them with the financial data on Bank Niaga only minutes before the hearing began.

Some legislators also felt that they were "forced" to approve the recapitalization program in March because the government said at that time that there was no more time for arguing as the government would have to meet with the IMF the next morning.

"I will only approve the recapitalization program, if Bank Niaga top executives and the IBRA chairman agree to step down should they fail to meet their financial projections," said legislator Azan Mukhlis.

But Indonesian Democratic Party of Struggle legislator Aberson Marle Sihaloho said that the House should approve the recapitalization in a bid to save the country's banking system.

"We made the choice in March. Now, we only need Bank Niaga management to convince us that they can meet their projections," he said.

Head of House Commission IX, Sukowalujo Mintohardjo, agreed. "We can't back down." (rei)