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)