Legal merger of IBRA banks to wait until mid-2002

Berni K. Moestafa, The Jakarta Post, Jakarta

The Indonesian Bank Restructuring Agency (IBRA) said it would finalize the legal merger of the five banks under its supervision in six months' time or by mid-2002 at the earliest, but expected a preliminary deal on the merger this year.

IBRA deputy chairman for the Bank Restructuring Unit (BRU) Soebowo Musa said a legal merger would take about six months after the signing of its preliminary deal.

"A legal merger of a publicly listed bank takes about three months to four months, but we would prefer to keep our target safe at six months," he told reporters on the sidelines of a post-Idul Fitri gathering at Bank Indonesia.

Earmarked for the merger are Bank Artamedia, Bank Prima Express, Bank Patriot, Bank Bali and Bank Universal.

They had been unable to meet Bank Indonesia's minimum capital adequacy ratio (CAR) of eight percent by the end of the year.

CAR is the ratio of a bank's risk-weighted assets, such as loans, to its capital.

The central bank requires banks have a minimum CAR level of eight percent or face liquidation. The alternative to this is merger.

Earlier, the government planned to finalize the legal merger this year and the more complex operational merger later on.

Thus far, details on the planned merger remain sketchy. Soebowo explained some of the key points.

He said that IBRA planned merging the banks under what he termed a coordinator bank, as oppose to a surviving entity.

A bank selected as the surviving entity would maintain its old identity, while others would lose theirs when they were merged into that bank, he said.

For a coordinator bank, IBRA would select one bank based on its management quality to coordinate the merger process.

But it might not be the bank others merge into, Soebowo said.

"The coordinator bank is not the surviving entity as there is no surviving entity," he explained.

Yet that does not mean a new bank would be established either, as the government did when it set up Bank Mandiri to merge four state banks, he went on.

He added that unlike the surviving entity scheme, other banks could transfer their competitive advantages to the new banks.

According to him, IBRA would take out the bank's advantages and combine them with those of the banks with which they would be merged.

"We will give the bank a new name ... because that would be more refreshing for the banking sector," he said.

IBRA would form a team to handle the merger along with a joint team comprising members of the five banks, he said, adding there was no timetable yet on the operational merger of the banks.

On financing the merger, he said the government would use recycle bonds, or recapitalization bonds that IBRA had redeemed.

The recycle bonds, he said, should cover the merger cost, and the funds needed to shore up the banks' capital.