Paid-up capital of banks

Paid-up capital of banks

From Bisnis Indonesia

The Bank Indonesia governor stated on Feb. 10 that the paid-up
capital of banks would be Rp 1 trillion at the end of 1998, Rp 2
trillion at the end of 1999, and Rp 3 trillion at the end of
2003.

The regulation for foreign exchange banks is Rp 100 billion in
1999, with a 10 percent capital adequacy ratio (CAR), and Rp 150
billion in 2001, with a 12 percent CAR.

The new regulation is highly startling, although rumors to
that effect have been circulating for some time. It was estimated
that paid-up capital would be fixed at Rp 500 billion, gradually
becoming Rp 1 trillion in consideration of the very difficult
monetary conditions. Perhaps Bank Indonesia has not yet
considered the following:

1. Paid-up capital of national private banks vary widely, from
less than Rp 10 billion to more than Rp 1 trillion for 146 banks.

2. A merger or a consolidation cannot be effected in 10
months, especially when it concerns dozens of banks.

3. The requirements on mergers for banks that have gone public
are more complex because the procedure involves the Capital
Market Supervisory Agency as well as Bank Indonesia and the
Ministry of Finance.

4. The increase of the paid-up capital from Rp 1 trillion to
Rp 2 trillion (at the end of 1999) is impossible to realize.
Foreign partners are not yet in sight because of the high country
risk.

5. If banks fail to meet the requirements they must close,
then there will be unrest and no confidence in the government.

6. A compulsory merger or consolidation does not guarantee
healthy banks because capital is not the only deciding element.

7. It is said that Bank Indonesia has allocated Rp 50 trillion
to help out the liquidity of big banks (Business News, No.
6122/11-2-1998), so if small banks merge with a big bank, the
objective of the merger is not attained.

If the decision is irrevocable, the victim will be the
Indonesian banking community. This would be very tragic. In 1988,
a regulation was introduced stating the paid-up capital was Rp 10
billion. After 10 years, everybody is being choked with a paid-up
capital of Rp 1 trillion. Perhaps there will be a new policy
after March 1998?

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