Recapitalization 'to be successful'
Recapitalization 'to be successful'
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
Thursday that the owners of 15 private national banks had pledged
to recapitalize their banks with their own resources.
"This means they will not have to join the government's bank
recapitalization program in order to meet the minimum capital
requirement of 4 percent," Sjahril told the House of
Representatives.
He added that the owners of six other banks had committed
themselves to injecting fresh money in order to be eligible to
join the government recapitalization program.
"These bank owners are very enthusiastic... so we're
optimistic about the success of the program," he said at a
hearing with the House Commission VIII on finance and the state
budget.
Under the government bank recapitalization program, the
country's commercial banks are divided into three categories
based on their capital adequacy ratio (CAR) conditions.
CAR is the ratio between equity capital and risk-weighted
assets.
Banks with a CAR of at least 4 percent fall into category A,
which means that they do not have to join the recapitalization
program.
The government has required all banks to meet the minimum 4
percent CAR requirement by the end of this year.
Banks with CAR of between minus 25 percent and less than 4
percent come under category B, which makes them eligible to join
the recapitalization program.
Banks with CAR below minus 25 percent come under category C,
which means that they must inject fresh capital to reach
category B in order to be eligible.
The government plans to provide up to 80 percent of the
financing needed for the recapitalization, while the remainder
has to be provided by the bank owners.
Bank Indonesia director Soebardjo Djojosoemarto said that the
15 banks had submitted business plans, which were being evaluated
by the government credit evaluation committee.
"The evaluation will last for two weeks, and if the plans are
considered viable enough, the banks will be given one month in
which to inject fresh money," he told reporters on the sidelines
of the hearing.
He explained that of the country's 208 commercial banks, 10
foreign banks would not join the recapitalization program, and 34
joint venture banks would also use their own resources for the
recapitalization step.
He said that the remaining 164 banks had been audited.
The bank recapitalization program is an essential part of the
country's bank restructuring measures, which are seen as a
precondition for the country's economic recovery.
There have been worries that the recapitalization program may
not go as planned due to various reasons including the inability
of many banks to provide the 20 percent financing amid current
tight liquidity conditions.
There is also speculation that the government is divided over
whether to pursue the recapitalization program as scheduled or
delay it until the overall economic conditions improve, as this
week's announcement on the details of the recapitalization
program has been delayed.
"We can't postpone this program. The risk is too big even
with only a one month delay," Sjahril told the legislators.
He pointed out that a delay would kill whatever confidence
still remains in the economy. There would not be any economic
recovery without recapitalizing the banks.
He said that final details were currently under preparation,
and the government would make the announcement this month,
possibly next week.
Separately, chairman of the Indonesian Private Banks
Association (Perbanas) Gunarni Soeworo said on Thursday that the
association had not asked President B.J. Habibie to delay the
recapitalization program. She was speaking to reporters after
meeting the President.
Sjahril said that the state budget would fund the interest
payment on the bonds to be issued for financing the 80 percent
recapitalization funding as pledged by the government.
He declined to disclose the interest costs, but said that as a
comparison, Thailand had allocated 3 percent of its GDP for the
interest payment.
Asked whether the authority would further close down banks
failing to be recapitalized, he said: "There are always
possibilities of further bank closures."
But he added that such an option would be the last resort
after persuading the banks to take some measures including the
merger alternative.
Meanwhile, Standard & Poor's said in a statement on Thursday
that even as the government proceeded with its banking
recapitalization program, the apparent near-term target of a 4
percent CAR for the sector would still leave the country's
banking industry in a weak capital position compared to regional
and international benchmarks.
It said that at the end of September 1998, the equity-to-
assets ratio of the Indonesian banking industry had fallen to
1.23 percent, adding that non-performing loans-to-total loans
were expected to reach 65 percent at the end of this year. (rei)