Perbanas urges govt not to force banks to merge

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)