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)