IBRA to consolidate crowded local banking industry

JAKARTA (JP): The government is planning to consolidate the number of commercial banks in the crowded banking industry by 2005 as part of the country's new banking landscape, Indonesian Bank Restructuring Agency (IBRA) chairman Cacuk Sudarijanto said.

"This is part of our long-term target. By 2005, we expect to see 15 'core banks' and '20 focus banks'," he told the House of Representatives Commission IX for financial and development planning affairs during a recent meeting.

"Rather than having a large number of banks, it's better to have less banks with more branches to serve customers throughout the country," he added.

He said the government expected the process to take place "voluntarily," but if not, the government would set up certain criteria to force banks to merge.

He did not explain what the criteria would be.

Cacuk said the country's future banking landscape would consist of several core banks, focus banks, regional banks and foreign banks.

Core banks refer to major domestic banks, while focus banks are smaller banks catering to a certain type of market.

As of the end of July, 161 banks were operating in the country's crowded banking industry, which comprises 91 private banks, 5 state-owned banks, 39 foreign and joint venture banks and 26 provincial development banks.

The government has closed 66 commercial banks since the financial crisis started in the middle of 1997.

Cacuk said the government would start by reshaping the 11 "IBRA banks" to achieve the target.

The IBRA banks refer to private banks which have been recapitalized with the financial help of the government.

The banks include publicly listed Bank Central Asia (BCA), Bank Danamon, Bank Niaga, Bank Universal, Bank Internasional Indonesia, Bank Bali Lippo Bank and non-listed Bank Artha Media, Bank Prima Express, Bank Bukopin and Bank Patriot.

He said IBRA, a unit under the finance ministry, had formed three working groups to upgrade the operations of the 11 IBRA banks.

He said the first team was responsible for improving corporate governance and transparency at the banks. The team would consist of the presidents of the 11 banks, he added.

Cacuk said the second team would focus on upgrading the banks' IT system.

"Competition in the banking industry nowadays is focused on the IT system," he said.

"We are now thinking of ways on how to create an IT system that could be jointly utilized by the banks," he added.

The third team is responsible for improving human resources at the banks, Cacuk said.

Elsewhere, Cacuk said in terms of the capital adequacy ratio (CAR), the 11 banks had a CAR level beyond the government's minimum requirement of 4 percent.

He said the highest CAR level -- the ratio between the bank's risk-weighted assets and equity -- was 35.8 percent at BCA, while the lowest was 6.4 percent at Bank Arthamedia.

He said the average non-performing loan (NPL) level of the 11 IBRA banks was 36 percent.

He said BCA was relatively free of NPLs, while Bank Niaga had a high NPL level of 71.7 percent.

"We expect the NPLs at Bank Niaga to come down to below 20 percent soon," he added.

Cacuk said the average loan to deposit ratio of the 11 IBRA banks was 39.8 percent, with BCA at 5.8 percent and Bank Niaga at 44.7 percent.(rei)