IBRA assuages concerns over banks' capital rule

IBRA assuages concerns over banks' capital rule

JAKARTA (JP): Chairman of the Indonesian Bank Restructuring
Agency Edwin Gerungan said on Tuesday that the capital adequacy
ratio (CAR) levels of Bank Internasional Indonesia (BII) and Bank
Universal were 6.75 percent and 4.75 percent respectively.

"But these two banks still have ample time to increase their
CAR levels to the minimum 8 percent required by the central bank
at end of this year," Gerungan added in a statement.

He said that the slow rise in Bank Universal's CAR level was
caused by its aggressive lending operations which last year alone
channeled around Rp 3 trillion to mostly small and medium-scale
enterprises.

Many other IBRA-controlled banks already have CARs higher than
8 percent, but remain reluctant to resume significant lending,
preferring to invest their funds in Bank Indonesia's debt papers.

CAR is the ratio between capital and risk-weighted assets.
Loans are classified as assets with a 100 percent risk.

"Anticipatory measures have been taken by the management of
the two banks, together with IBRA, to find the best and optimum
alternative solution to meet the Bank Indonesia capital standard
requirement," Edwin said.

"Merger is one alternative but the government wants it to be a
natural process chosen by the banks," he reiterated.

Elsewhere, Edwin said that the CARs of other IBRA-controlled
banks were already well above the year-end minimum level of 8
percent.

Citing examples, he said that Danamon's CAR was now 41.27
percent and Bank Niaga's 17.98 percent, as of September.

He also said that the non-performing loan level (NPL) of Bank
Lippo had declined from 45.28 percent to 36.13 percent in
September, while the NPL of Bank Universal declined from 31.57
percent to 21.03 percent in June.

Separately, IBRA's outgoing deputy chairman Jerry Ng said the
agency would not force banks under its management to merge in
order to be able to meet the 8 percent minimum CAR level later
this year.

Jerry said that although merger was one alternative, it ought
to be based on "market forces".

"IBRA won't force banks to merge," he told reporters,
following a meeting with Coordinating Minister for the Economy
Rizal Ramli and International Monetary Fund (IMF) Jakarta
representative John Dodsworth on Tuesday.

Jerry said that there were various options available to help
banks meet the year-end minimum 8 percent CAR requirement, which
included inviting new strategic investors.

"Merger is not the only solution," said Jerry, who tendered
his resignation last week.

There has been speculation that Jerry, together with another
IBRA deputy chairman Mahmudin Jassin, resigned due to increased
political interference with the agency.

But Jerry has dismissed such speculation.

IBRA controls the ownership of 11 banks, including the
publicly-listed: Bank Central Asia (BCA), Bank Niaga, Bank
Danamon, Bank Bali, Bank Lippo, Bank Internasional Indonesia
(BII) and Bank Universal; as well as non-listed banks: Bank Artha
Media, Bank Prima Express, Bank Bukopin and Bank Patriot.

The first four publicly-listed banks are called the
nationalized banks, with government ownership (via IBRA) at
around 90 percent, while the remaining seven banks are called the
recapitalized banks, with government ownership ranging between 50
percent to 80 percent.

Bank Indonesia requires that all domestic banks must have a
minimum 8 percent CAR level by the end of 2001 or risk closure.

Banks must also have an NPL of not more than 5 percent by the
end of the year.

IBRA officials have admitted that from the 11 banks under its
management, BII and Bank Universal still have CARs lower than 8
percent, but higher than the current minimum of 4 percent.

The steady increase in the central bank's benchmark interest
rate and the weakening rupiah have made the climate unfavorable
for the recovery of the newly restructured banks.

There have been rumors that Bank Universal is planning to
merge with BCA, while Bank Lippo is eying a partnership with
several other IBRA-controlled banks in order to form a bigger
institution.

Last year, Lippo reportedly proposed to the government the
formation of the so-called Power Bank, which would merge several
banks under IBRA's control.

Fears that IBRA or the government would force banks to merge
arose after some government and Bank Indonesia officials said
that the industry was still crowded with too many banks, of which
there are 150 in total.

There have been plans to restructure the banking sector to
make it leaner but stronger, leaving only around 15 core banks
and 20 focus banks by the end of 2003, but no follow-up action
has been taken.

The government has closed around 66 banks since the economic
and banking crisis began in the middle of 1997. (rei)