IBRA told to close more banks

Dadan Wijaksana, The Jakarta Post, Jakarta

Remarks by Bank Indonesia (BI) officials that two of the five banks under the supervision of the Indonesian Bank Restructuring Agency (IBRA) were not qualified for a planned merger should serve as a signal for the agency to exclude both from the merger program altogether.

Throwing his weight behind the central bank, banking analyst Drajat Wibowo said that, at this point, liquidation would be just fine for the weak banks.

"The truth is, as BI says, the banks should be liquidated," he told The Jakarta Post on Thursday.

His comments came amid mounting disagreement between Bank Indonesia and IBRA officials over the number of banks that should be merged under the agency's scheme.

Without naming the specific institutions, Bank Indonesia officials recently stated that two of the five banks were in a precarious financial condition and, thus, hardly eligible for a merger.

Drajat agreed. "My feeling is that things will only get worse if the merger plan incorporates all five banks, because the bad ones would most certainly drag down the good ones."

As part of efforts to restructure the Indonesia's troubled banking industry, IBRA plans to merge five banks -- Bank Bali, Bank Universal, Bank Artha Media, Bank Prima Express, and Bank Patriot.

Except for Bank Bali, the other four banks were supposed to have been closed down by the government late last year, as their capital adequacy ratios (CAR) were below the central bank's eight percent minimum requirement.

But the government spared them the ax, saying the banks would instead be merged, before being put under IBRA supervision. The agency is in charge of restructuring the country's hobbled banking industry.

Measuring a bank's health, CAR is a ratio between capital and its risked, weighted assets, including loans.

IBRA Chairman I Putu Ary Suta has insisted that the five banks should be merged, saying that closing two of them would simply create yet another burden on the government, which must guarantee the obligations, including depositors' money, of closed down banks.

In addition, the closing of the banks would have negative psychological impact on the financial business community.

But Bank Indonesia said that the two unqualified banks were small banks with limited number of depositors, so closing down the banks should have no major adverse impact.

Elsewhere, Drajat added that BI and IBRA should soon settle their differences over the matter since it would only make the merger plan take even longer to finalize.

"Because a prolonged disagreement would only slow down the restructuring process in the banking sector, BI and IBRA should coordinate better to minimize the risks."

The merger plan is seen as a necessary way of consolidating the banking sector, which is widely blamed for the country's slow progress in economic recovery since the crisis of 1997-1998.

Another analyst, meanwhile, said that the long, drawn-out nature of the plan reflects IBRA's clear lack of vision.

"They lack a solid concept, that's for sure; there are also too many interests involved," Elvin Masassya said.