IBRA denies Bank Universal, BCA merger rumor

JAKARTA (JP): Indonesian Bank Restructuring Agency (IBRA) Chairman Edwin Gerungan denied on Tuesday rumors that the agency would merge Bank Universal with Bank Central Asia (BCA).

Edwin said that merging the two publicly-listed banks was unviable as the agency planned to sell its majority stake in BCA in the near future.

"It is impossible to merge (Bank Universal) with BCA," he said following a meeting with senior economic ministers.

Edwin declined to name any banks that would potentially be merged with Bank Universal, pointing out that negotiations were still being held.

He did confirm, however, that a merger of banks under the supervision of IBRA would take place this year to meet the year- end minimum 8 percent capital adequacy ratio (CAR) requirement.

Edwin was responding to reports claiming that IBRA was planning to merge Bank Universal with BCA.

Other reports suggested that Bank Universal would be merged with the publicly-listed Bank Danamon.

IBRA, a unit under the finance ministry, holds majority ownership in 11 private banks following the government's massive bailout program in 1998 and 1999. The IBRA banks include BCA, Danamon, Universal, Bank Niaga, Bank Internasional Indonesia, Lippo Bank, Bank Bali, Bank Bukopin, Bank Prima Express, Bank Artha Media and Bank Patriot.

The agency sold around 22.5 percent of BCA last year via an initial public offering and plans to sell another 40 percent during July or August.

IBRA also plans to offload around 51 percent of publicly- listed Bank Niaga in the near future.

Bank Indonesia has recently said that there were at least three banks under IBRA which might not be able to meet the 8 percent CAR requirement by the end of this year. The central bank did not name the banks, but said that a merger could be less costly than having to recapitalize them or close them down.

Minister of Finance Prijadi Praptosuhardjo, however, recently said that the government would not decide to merge banks based solely on their CAR condition. He said that the banks' liquidity and asset size would also be considered.

"We will not merge two banks that cannot look forward to good synergy. Mergers are actually just one alternative to resolve the (banking) crisis," Prijadi said.

The government issued a massive Rp 430 trillion in bonds to help finance the recapitalization of some 27 ailing domestic banks, including state banks. The state budget covers interest paid on the bonds.

But as domestic interest rates continues to move higher some banks are facing the risk of further financial bleeding that could force the government to launch a second recapitalization program and in turn create a greater burden on the already strained state budget.

Bank Indonesia has said that, in addition to the three IBRA banks, there were some 17 non-IBRA banks which might not be able to meet the year-end CAR requirement.

The banks' owners must either inject fresh capital or merge the banks with healthier ones to avoid closure.(rei)