House okays Bank Niaga recapitalization

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)