Recapitalized banks show strong results

Recapitalized banks show strong results

JAKARTA (JP): Nine private banks which have been recapitalized
by the Indonesian Bank Restructuring Agency (IBRA) have shown
strong performance during the first half of this year, according
to the agency's deputy chairman, Jerry Ng.

But Jerry said on Thursday that despite the improvement in key
indicators, the banks were not out of the woods yet.

"In general, all IBRA banks are moving on the right track with
improvements in key indicators during the first half," he told a
media conference.

"But we must remain alert because the problems are not yet
over," he added.

Jerry dismissed criticism that the recapitalized banks had not
yet resumed lending to the real sector, pointing out that the
nine IBRA banks had channeled more than Rp 6 trillion (US$662.98
million) in new lending between January and May.

"This is an 18 percent growth compared to the level in
December last year," he said.

The nine private banks which have been recapitalized by IBRA
included the publicly listed Bank Lippo, Bank Internasional
Indonesia, Bank Universal, Bank Danamon and Bank Central Asia,
and private Bank Bukopin, Bank Arta Media, Bank Patriot and Bank
Prima Express.

IBRA has recapitalized 10 banks, including publicly listed
Bank Niaga in June. The agency is expected to recapitalize
publicly listed Bank Bali in October, which would mark the
completion of the country's bank recapitalization program.

The recapitalization program is aimed at boosting the banks'
capital adequacy ratio (CAR) to beyond the minimum 4 percent
level.

In addition to the private banks, the government has also
recapitalized four state banks. Nine smaller private banks have
been incorporated into Bank Danamon, prompting the government to
finance the second recapitalization of Danamon to maintain its
CAR above the minimum requirement.

Jerry said that the average CAR level as of June was about
10.35 percent.

He said that between January and May, the assets of the
recapitalized banks increased 17 percent with deposits up 8
percent while nonperforming loans (NPLs) decreased from 30
percent to 27.5 percent.

Jerry said, however, that the banks were still being plagued
by other problems, including assets held up mostly in government
bonds, a low loan to deposit ratio (LDR) of only about 43 percent
and the necessity of accelerating loan restructuring.

"The balance sheets of the banks are still mostly filled with
government bonds," he said.

The government, via IBRA, a unit of the finance ministry,
injected bonds instead of cash into the banks to finance the
recapitalization program. The banks will receive cash from the
interest rate of the bonds.

Jerry said that Minister of Finance Bambang Sudibyo's idea of
swapping part of the recapitalization bonds for performing loans
under IBRA, if realized, would aid the improvement of the balance
sheets.

He pointed out that the interest rate of the bonds was now at
about 12 percent, while the interest rate of bank loans was about
16 percent.

Bambang said earlier this week that the government was still
designing the new policy.

He said that the total recapitalization bonds by October would
amount to about Rp 430 trillion, and that was expected to be
halved by swapping them for the IBRA loans.

IBRA now controls about Rp 250 trillion in NPLs. The agency is
mandated to restructure the loans to make them performing loans
again.

Jerry said that an improvement in the bank's balance sheets
would be one way of lifting the current low LDR.

Indonesian banks were badly hit by the financial crisis that
started in the middle of 1997. The government has closed down
some 49 banks and has issued bonds worth more than Rp 600
trillion to finance the bank recapitalization and restructuring
program.

Jerry said that the future landscape of the country's banking
sector would consist of less than 10 large banks, dozens of
small- to medium-size banks, and foreign banks.

He said that the current number of about 100 banks would
continue to decline due to mergers and acquisition.

Jerry also said that the government effectively now controlled
between 85 percent and 90 percent of the country's banking sector
as a result of the recapitalization program.

The government has provided between 80 percent and 100 percent
of the financing needs of the bank recapitalization program.

"So the government is in a unique position of designing the
future landscape of the domestic banking sector," Jerry said.

He said that IBRA planned to seek approval later next month
from the House of Representatives to divest ownership in four
listed banks, including Bank Central Asia, Bank Niaga, Bank
Internasional Indonesia and Bank Universal. (rei)