No bank closures this year: BI

No bank closures this year: BI

or

BI: no bank closures this year

Berni K. Moestafa
The Jakarta Post
Jakarta

Bank Indonesia assured reporters on Monday that no banks would be
closed down by the end of the year, as all had met their minimum
capital to asset ratio requirements.

"All banks have met the eight percent CAR level, according to
the reports that we have received," Bank Indonesia Senior Deputy
Governor Anwar Nasution told reporters during a seminar on
privatization held by the business consultancy firm CastleAsia.

Anwar was referring to the Capital Adequacy Ratio, which rates
a bank's health by measuring its risk-weighted assets, foremost
loans, against its capital.

The higher a bank's CAR level is, the more it can provide in
capital to cover loans that are at risk of turning bad.

Except for some banks that had been placed under the care of
the Indonesian Bank Restructuring Agency (IBRA), others were
healthy, Anwar added.

As for next year, he said the central bank had yet to decide
whether to hike the CAR requirement to 12 percent, which is an
international standard level.

According to him, the CAR level should grow in line with the
expansion of a bank's operation.

Raising CAR levels requires banks to either inject more
capital, or restructure non-performing loans to lower their risk.

But raising CAR levels again would not be easy, because
capital was scarce and loan restructuring was progressing slowly.

Even banks with an eight percent CAR level are not out of the
woods yet, as loans' risks can increase rapidly. Unless capital
is injected to offset the rise in risk, CAR level will drop.

In July, the central bank said nine banks were at risk of
closure this year because of their weak CAR level.

Failure to comply with the minimum CAR requirement could lead
to either merger, or liquidation.

However, banks are given up to six months to improve their CAR
levels before either of the two steps are taken.

But for the government closing banks could be a costly option.

Its blanket guarantee scheme require the government to cover
the banks' third party liabilities.

That had been among the reasons why the government injected
faltering banks with recapitalization bonds in the wake of the
1997 financial crisis.

For now, five banks under IBRA are known to be at risk of
owning a CAR of below eight percent this year. To avoid their
liquidation, the government is hoping to merge the banks.

Turning to non-performing loan (NPL), Anwar said this year's
target of five percent was not obligatory, though it might become
next year.

Non-performing loans are those in which debtors have missed
their interest and principle payments by more than 90 days.

The NPL ratio then measures a bank's NPL against its total
loans.