Perbanas supports merger of weak and small banks
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)
Photo -- Page 12
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)
Photo -- Page 12