Perbanas supports merger of weak and small banks

JAKARTA (JP): The Federation of Private Domestic Banks (Perbanas) pledged its full support yesterday in the merger of weak and small banks in a bid to strengthen the country's banking sector.

Perbanas' deputy chairman B.S. Kusmuljono said the association was pushing a plan to establish an association of bank owners in the country to facilitate the process of consolidation and mergers between private banks.

"Such an association would serve as a forum for communication between bank owners and as a means for sounding out potential partners for a merger," Kusmuljono said after a hearing with House of Representatives Commission VIII for finance.

Kusmuljono said the Indonesian banking industry was suffering a confidence crisis after the closure of 16 insolvent banks early this month, because the public was afraid that several more banks could be liquidated.

International confidence in Indonesian banks was so low that local banks would need the guarantee of large international banks before they could issue a letter of credit, he said.

According to him, it was better to have a smaller number of large banks than a plethora of weak ones.

He said mergers were a way to strengthen banks, making them more competitive.

Separately, economist Pande Radja Silalahi said yesterday that at least 45 more private national banks should set up mergers within the next few months or they might face closure.

Silalahi said the government's assurance that there would not be any more bank closures after the liquidation of the 16 insolvent banks might be effective only until April, a month after the People's Consultative Assembly elects a new president in March.

"Long before the government's decision to close the 16 banks, I suggested that at least 60 banks be closed to restore the industry," added Pande, an economist with the Centre for Strategic and International Studies (CSIS) in Jakarta.

"To be able to survive market competition, a bank must fulfill all the requirements set by the central bank," he said at a seminar yesterday.

Silalahi said 210 of the nation's 237 banks were weak and some were terminally ill.

"These banks have been forced to stay alive," he said.

The currency crisis, which saw a 35 percent drop in the rupiah's value against the U.S. dollar, and the tight money policy had uncovered the weaknesses of the banking industry, he said.

The tight monetary condition showed the poor risk-management of the banks, as reflected in the high volatility of interest rates in the interbank market, he said.

Tougher regulations on the capital adequacy ratio, reserve requirements, the legal lending limit and other prudential rules would force many banks to merge or sell their stakes to other banks, he said.

"It would cost the government a lot to keep these dead bodies alive," Silalahi said.

Another economist, Miranda Gultom, shared Pande's view, saying mergers and acquisitions in the country's banking sector were more urgent now.

However, the central bank should tighten the criteria used to determine the health of a bank, said Miranda, also the advisor to Coordinating Minister for Economy and Finance Saleh Afiff. (das/icn)

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