Mon, 11 Sep 2000

Perbanas urges govt not to force banks to merge

JAKARTA (JP): The chairwoman of the Federation of Private Domestic Banks (Perbanas), Gunarni Soeworo, called on the country's banking authorities not to force small and medium-size banks into the process of mergers and acquisitions.

Gunarni said on Saturday some small and medium-size banks should be given the right to decide their own futures because they had managed to carve out their own market niches.

"I think the small and medium-size banks should be given the chance to make their own decisions because they already have their own markets and they know their markets very well," she said on the sidelines of Perbanas' 14th congress.

The merger and acquisition issue also was raised by participants of the congress, which also saw Gunarni reelected chairwoman of the federation.

She said banking mergers and acquisitions were a global phenomenon, and it was unavoidable the process would take place in Indonesia.

"But if the government has plans to merge the smaller banks, let the process be made based on their own decisions ... they should be given the right to continue on, after all they've been able to survive the (economic) crisis," Gunarni said.

The previous economic team in the Cabinet said it planned to push smaller banks into the merger and acquisition process as part of the overall bank restructuring program agreed upon with the International Monetary Fund.

The IMF is providing some US$5 billion in bailout funds for the current administration to finance its economic reform program.

The country had some 160 private banks before the financial and economic crisis struck in the middle of 1997. This large number of banks was the result of the government's liberalization of the industry in 1988.

The government has closed down some 66 banks since the crisis started, but the current number of banks is still seen by many as too large and inefficient.

The government has said it wants only a few "core banks" and some smaller banks catering to specific markets to remain in operation to facilitate the effective supervision of the industry.

The government began the merger and acquisition process last year by merging four state banks to form Bank Mandiri. It also recently merged eight smaller nationalized banks into publicly listed Bank Danamon, which also has been nationalized.

Since the economic crisis started, the government has nationalized some 13 private banks and helped recapitalize another seven private banks, making the government a major shareholder in these banks.

Discussing other issues, Gunarni said the largest challenge facing the banking industry was how to accelerate its intermediary function in a prudent manner.

Gunarni said that although most banks had been recapitalized by the government and had increased third-party deposits, they had not yet resumed lending in significant amounts.

"But this is not because of a 'lending phobia,'" she said, dismissing earlier remarks by a government official at the congress.

"Because of past experience they must now be extra careful and more prudent in managing the risks to avoid a second crisis," she said.

Bankers have said the huge amount of nonperforming loans owed by the real sector has been a major factor preventing them from resuming any significant lending.

Gunarni added that the impending economic decentralization would have consequences on bank branches in provinces and regencies.

Regional administrations will enjoy greater freedom with the implementation of the regional autonomy law in January.

Bankers attending the congress were still unsure of the likely consequences of the regional autonomy law, but there have been growing worries that local administrations might try to squeeze banks in a bid to raise revenue.

"People always think that banks are rich. This could be a problem," said one banker. (rei)