More major bank restructuring planned

More major bank restructuring planned

JAKARTA (JP): The government plans another series of major
bank restructuring measures later this year when all banks have
to meet the new minimum 4 percent capital adequacy ratio
requirement (CAR), Minister of Finance Bambang Subianto said
yesterday.

He said the CAR requirement had to be fulfilled because strong
capital was one of the prerequisites to helping the banking
system recover its favorable position, which would enable it to
grease the wheels of the economy, and at the same time to enable
Bank Indonesia to recover the liquidity support it extended to
ailing banks.

"So by the end of the year, we'll have a healthier banking
system in place to support the economy," he said at a capital
market conference.

He explained that international auditors who were now
conducting checks on all commercial banks (about 200) would
complete their task by the end of October.

Analysts said that domestic banks may find difficulties in
meeting the CAR requirement as they lacked the cash needed to
boost their capital to offset the increasing level of their
nonperforming assets.

Bambang declined to specify what measures would be taken
against banks which failed to meet the CAR requirement because
the bank audits had yet to be completed.

Bambang added that the fate of 38 private banks currently
under the supervision of the Indonesian Bank Restructuring Agency
would be decided next month after a complete audit of them had
been implemented. He also said another round of bank suspensions
was a possibility.

The government last week announced the suspension of three
private banks' operations, the nationalizing of four others
including the country's largest private bank Bank Central Asia
(BCA), and is in the process of merging four state banks into one
in efforts to demonstrate that it is serious about restructuring
the ailing banking sector.

Bambang said that in addition to recovering the central bank's
massive liquidity support given to the four banks to be
nationalized, the government's priority was also to recover the
loans given by the banks to their affiliated groups, which
reached between 70 percent and 100 percent of their total loans.

"It will be useless if we only recover the liquidity support
because we may have to come to the rescue again if we fail to
restore the health of the banks," he said.

He said the four banks to be nationalized had submitted their
proposals to return their inter-group credits and the liquidity
support, but he declined to give further details.

Analysts have said that the breaching of the legal lending
limit was the major cause of the financial distress of most
domestic commercial banks.

Reports earlier said that BCA's majority owner, the Salim
Group, had proposed surrendering to the financial authorities
assets and shares it owns in a wide range of businesses as part
of the solution to problems at the bank.

Bambang said the bank restructuring process would cause a
large number of banks' nonperforming loans to be transferred to
IBRA's asset management unit.

"So eventually IBRA will have to carry a restructuring program
of corporations," he said.

He acknowledged, however, that dealing with nonperforming
loans would be difficult because domestic corporations also
borrowed from overseas creditors.

"A well structured program will have to be put in place," he
said.

The government, he said, could not forcefully recover the bad
loans quickly because it would threaten the business sector and
cause more layoffs.

"We have to find a balance so that corporations can still
provide employment," Bambang said. (rei)