Large private banks come short on funds

Large private banks come short on funds

JAKARTA (JP): Bank Indonesia deputy governor Subarjo
Joyosumarto said on Tuesday owners of large private banks were
unable to come up with the 20 percent cash requirement to
recapitalize their banks due to ballooning funding needs.

He said the government would inject more than 80 percent of
the necessary funding to recapitalize the banks.

"The government will end up controlling more than 80 percent
of the banks, but only in large banks. The smaller banks can
afford to provide their 20 percent portion."

Under the country's bank recapitalization program, bank owners
were supposed to come up with at least 20 percent of the
recapitalization cost, with the government saying it would
finance the remainder.

However, the government later said it would support additional
funding needs due to the inflated recapitalization cost.

The government planned earlier to provide up to 80 percent
funding for the recapitalization of eight private banks,
including the publicly listed Bank Lippo, Bank Internasional
Indonesia, Bank Universal, Bank Bali, Bank Niaga and non-listed
Bank Bukopin, Bank Artha Media, Bank Prima Express and Bank
Patriot.

But Biank Niaga owners were unable to provide the 20 percent
recapitalization funding, prompting the government to take over
the bank.

Based on a due diligence audit made at the end of last year,
the recapitalization cost for the nine banks was initially
estimated at Rp 21 trillion.

But persisting negative interest rate spread, resulting from
the higher interest rates given to depositors by the banks
compared to the interest rates charged for their lending, had
inflated the recapitalization cost to Rp 34 trillion.

Subarjo did not specify the exact number of the remaining
eight private banks unable to provide the additional
recapitalization cash requirement to maintain the 20 percent
funding portion.

Bank Universal, for instance, said on Monday that its majority
shareholder, PT Astra International, could not come up with the
inflated Rp 1 trillion necessary to meet the 20 percent
recapitalization funding needs.

As of December 1998, Astra had submitted Rp 477 billion or 20
percent of the recapitalization needs on the basis of its
condition.

"Smaller banks like Bank Patriot have been able to provide the
20 percent funding portion," he said, referring to the non-listed
banks.

Subarjo said that although the government would have to
provide recapitalization funding greater than the 80 percent
initially expected, it was a necessary cost needed to fix the
economy.

"We have to cough up more funding. This is the cost needed to
recover our economy," he said.

The recapitalization program is designed to lift the banks
capital adequacy ratio (CAR) to the minimum 4 percent level. CAR
is the ratio between capital and risk-weighted assets.

In addition to the nine private banks, the government would
provide 100 percent financing for the recapitalization of seven
state banks, and 11 banks which were taken over. The government
would also provide 80 percent financing for the recapitalization
of 12 provincial development banks.

The total cost of the recapitalization program is expected to
be larger than the initial estimate of Rp 300 trillion.

The government will issue bonds to finance the
recapitalization program.

Subarjo said the bonds issue for the recapitalization of the
nine private banks would begin this week.

The bonds will carry two kinds of interest rates: fixed rate
and market rates linked to the interest rate of the 3-month Bank
Indonesia SBI promissory note. The variable rates will be applied
to lift bank's CAR from the negative territory to the zero level,
and the fixed rate to raise the CAR from zero to the minimum 4
percent level.

Subarjo said the Indonesian Bank Restructuring Agency was
expected to clinch a deal with a foreign investor next month to
buy at least 20 percent of Bank Niaga.

He said foreign investors which have expressed strong interest
in buying into Bank Niaga were ABN Amro Bank, GE Capital, New
Bridge Capital and Global Alliance.

Subarjo said foreign investors were expected to go on a
massive buying spree of the country's banking industry after the
June 7 general election.

"If the elections run smoothly, investors will come in much
earlier," he said.

The U.K.-based Standard Chartered Bank recently bought 20
percent of Bank Bali, the first foreign foray into local banks
since the financial crisis started in 1997. (rei)