Japanese banks mull capital boost for Indonesian units

Japanese banks mull capital boost for Indonesian units

TOKYO (Reuters): Major Japanese commercial banks are considering raising capital for their Indonesian subsidiaries that were jointly set up with companies in the southeast Asian nation, banking sources here said yesterday.

However, the amount of capital to be raised and the timing have yet to be decided, they said.

"We will be raising capital. But given the stalling debt negotiations between foreign creditor banks and Indonesian companies and lingering uncertainty over the Habibie administration, a final decision cannot be made," said a Japanese bank official, who declined to be named.

The Indonesian government has called for banks operating in Jakarta to raise their minimum capital to Rp 250 billion.

However, the maximum capitalization among Indonesian subsidiaries of Japanese banks was currently Rp 150 billion.

Separately, banks operating there are required to set aside loan loss reserves of up to 100 percent of the original value of the loans to cover possible losses.

The banking sources said the amount of reserves that are needed cannot be estimated in a situation where talks over the debt of Indonesian companies have stalled.

Talks on how to reschedule Indonesia's $80 billion private sector debt, originally set for May 26 in Frankfurt, have been postponed until June 1 due to the turmoil in the nation.

"If banks were to set aside such reserves, that would eat up a part of the capital of their Indonesian banking subsidiaries, raising the need for the replenishment of capital in the near future," said a senior analyst at a Japanese think-tank.