New bank capital requirement set at Rp1t

JAKARTA (JP): Bank Indonesia, the central bank, will raise the minimum paid-up capital requirement for domestic banks to Rp 1 trillion (US$125 million) from Rp 50 billion and Rp 150 billion at present to strengthen the country's banking system.

Bank Indonesia Governor J. Soedradjad Djiwandono said yesterday the paid-up capital requirement would be Rp 1 trillion by the end of this year, Rp 2 trillion by the end of 1999 and Rp 3 trillion by the end of 2003.

He said the National Economic and Financial Resilience Council made the decision at a meeting chaired by President Soeharto yesterday.

"The decision is expected to accelerate mergers among banks so that our banking industry will become stronger with a bigger capital base," Soedradjad said at a media conference after the meeting.

Officials who attended the media conference included the council's secretary-general, Widjojo Nitisastro; council vice secretary-general Fuad Bawazier, who is also director general of tax, and council member A. Subowo, who is also chairman of the National Banking Association.

At present, the government requires a Rp 150 billion minimum paid-up capital requirement for new foreign-exchange banks and Rp 50 billion for non-foreign exchange banks, which deal only in rupiah.

Soedradjad said the planned capital regulation would not allow for different paid-up capital requirements for each type of bank.

Subowo said the new regulation could force a reduction in the number of commercial banks to 28 from the present 212 by the end of the year.

He said only 10 or 11 banks currently had capital of more than Rp 1 trillion.

Most private banks will have to merge with other banks or invite foreign investors to enable them to meet the new capital requirement, he said.

"We will have to quickly act to meet the requirement," he said.

Subowo noted, however, that the existing law which limits foreign ownership in local banks could hamper bank efforts to attract foreign investors.

According to existing laws, foreign investors are allowed to own up to 85 percent of a joint-venture bank while they are limited to a 49 percent share of domestic banks.

Unlike local banks, joint-venture banks are only allowed to operate in certain major cities.

Soedradjad promised that the government would propose an amendment to the existing law in the House of Representatives to enable foreign investors to buy greater shares of local banks.

He, however, refused to say what the penalty would be for banks which fail to meet the requirements, but he said that no banks would be liquidated.

"(There will be no liquidations) but acquisitions. If the banks were liquidated, their workers would be laid off. But if (the banks were) merged, workers would stay while the number of directors would be reduced," he said. (jsk/prb)