Indovest Bank likely to close: Official

Indovest Bank likely to close: Official

JAKARTA (JP): The government is weighing the fate of publicly
listed Indovest Bank after its Japanese partners refused to
recapitalize the ailing joint venture bank, a senior government
official said on Tuesday.

Speaking on the condition of anonymity, he said a final
decision would be made by Robby Djohan, president of state Bank
Mandiri, on Wednesday afternoon in a meeting with Indovest's
board of directors and commissioners.

"Several people want to keep the bank afloat. But this is
unrealistic as recapitalizing the ailing bank will be much
costlier than closing it down," he told The Jakarta Post.

He asserted Indovest would need more than Rp 700 billion
(about US$82 million) to bring its capital adequacy ratio to the
minimum 4 percent requirement.

Indovest is a foreign exchange institution owned by state Bank
Dagang Negara (BDN), holding a 51 percent share, and Japan's Bank
of Tokyo Mitsubishi (18.14 percent) and Nikko Securities (17.43
percent). The public holds the remaining shares.

BDN has been acquired by Bank Mandiri, which was launched last
year to acquire and merge four troubled state banks.

The source said the Japanese investors' formal explanation on
refusing to assist in recapitalization concerned problems
affecting the financial and banking sectors in their homeland.

The government's official line is that it will not provide any
funding for the recapitalization of joint venture banks.

Bank Indonesia Governor Syahril Sabirin told the Post on
Tuesday the decision to recapitalize Indovest Bank would rest
with BDN.

Indonesia has about 34 joint venture banks. The government has
set the recapitalization deadline for April 21 or banks would
face closure.

Many predicted joint venture banks with Japanese institutions
would run the risk of liquidation as shareholders from both
countries would face difficulties in raising recapitalization
funding due to the economic crisis plaguing the two countries.

The government source speculated Indovest's management would
do its utmost to persuade Robby Djohan to allow recapitalization.
He contended it would .

"This is absurd. The bank has no strategic value for the
country. The bank is a sham."

He said the bank operated well until 1993 by strictly
channeling credit to multinationals.

However, he added, it then changed its strategy by providing
lending to local companies based on unsound banking practices,
which left it shouldering massive amounts of bad loans.

According to an audit report conducted by BDN, Indovest
management violated bank regulations by providing Rp 10 billion
in loans in June 1997 to a customer to purchase shares in a
publicly listed company.

Bank Indonesia stipulated that banks were not allowed to lend
money for the purpose of purchasing shares in listed companies.

The audit also said the bank's management was involved in a
tax scam in 1996 by not charging Rp 16 billion in income tax from
a Rp 833 billion certificate for deposit transactions. (rei/02)