Thu, 18 Aug 1994

Incentives planned for bank mergers

JAKARTA (JP): Minister of Finance Mar'ie Muhammad announced Tuesday that the government will offer incentives to encourage small banks to merge among themselves or with larger ones.

"The Ministry of Finance and Bank Indonesia (the central bank) are preparing the incentives," he told reporters after attending a plenary session of the House of Representatives (DPR).

He said that the introduction of the incentives is part of the government's efforts to further improve the operation and the quality of banks in the country. The minister refused to release details of the planned incentives.

"The success of the banking industry should not only be seen from the number of banks, but more importantly from the quality of their services and management," he said.

Sources said that at least 32 small banks have suffered liquidity problems due to their inability to compete in the tough market. The competition in the banking industry has become increasingly fierce since the government introduced banking reform in 1988, which caused a sharp increase in the number of commercial banks to 234 as of last December from only 112 in 1987. The number does not include the more than 5,000 secondary banks, whose operations are restricted to regencies.

Early last month, the finance minister threatened to issue a ruling to force small banks to merge.

"A ruling on the mandatory merging will be enforced if small banks continue to ignore the government's appeal to unite," he said. (hen)