Legal merger of banks expected this year: Official

Berni K. Moestafa, The Jakarta Post, Jakarta

The legal merger of recapitalized banks may be completed by the end of this year, a government official said, signaling efforts to avoid further liquidation by forcing weak banks to meet this year's capital adequacy ratio (CAR) target on time.

Minister for State Enterprises, Laksamana Sukardi said the government hoped to merge recapitalized banks as quickly as possible.

"If it's (the merger) like Bank Mandiri, a legal merger is possible this year," Laksamana told reporters after a meeting with banks Thursday night.

The government said on Thursday it planned to merge banks that had remained unhealthy even after receiving recapitalization bonds to lift their CAR levels.

The statement came just three days after Bank Indonesia shut down PT Unibank whose CAR had dropped below zero.

CAR measures a bank's financial health by comparing its capital against its risked weighted assets, that includes loans.

Runs on several banks marked the fallout of Unibank's closure as public confidence in private banks slipped further.

Analysts said chances of more bank liquidations remained high, given the still weak condition of the banking sector.

The government did not release any of the names of the banks that it had earmarked for mergers.

Laksamana said there were banks currently being supported by the Indonesian Bank Restructuring Agency (IBRA).

But he added state-owned banks may be included.

Under a legal merger, banks' operations remained separated although technically they are regarded as one entity.

The next step is the operational merger, which consolidates the banks' financial status and disposes of their old identities.

Laksamana said he preferred to follow the merger concept of Bank Mandiri - the outcome of four state banks merging in 1999.

The other scenario is the appointing of one strong bank to become a "mother bank", into which smaller banks would be merged.

"Rather than creating one mother bank, it's better to establish a new entity," Laksamana said.

But collectively, the new entity must have a CAR level of at least eight percent to survive the liquidation threat.

One bank, he added, that may be involved in a merger process was Bank Prima Express. Whereas for the publicly listed Bank Niaga, he added, privatization was preferable.

Laksamana also did not rule out the possibility of further consolidation of merged banks like Bank Mandiri and Bank Danamon, which once consisted of eight different banks.

"Merger is the global trend now, why don't we head the same direction," he said.

Since the Sept. 11 terrorist attacks in the United States, he said, banks' conditions had worsened enough to prompt further mergers

"NPLs (non-performing loans) are rising, banks' earning targets and capital are under pressure," he explained.