RI bank moves a positive step: S&P
RI bank moves a positive step: S&P
JAKARTA (JP): Indonesia's latest bank restructuring move was a
positive step and marked the effective nationalization of the
banking sector, Standard and Poor's said Tuesday.
But more recapitalization is needed, the New York-based rating
agency has said in a statement, a copy of which was made
available here.
"Standard & Poor's views the commencement of Indonesia's bank
recapitalization exercise as positive, although additional
recapitalization remains necessary," it said, referring to the
government's decision on Saturday to close 38 banks, nationalize
seven more and recapitalize nine others.
"The decision to close 38 banks, while nationalizing seven
others is commendable in that it addresses the need to shut down
nonviable banks while preventing significant disruption to
depositor confidence, which was what occurred in the November
1997 closure of 16 banks."
The agency noted that the impact of the weekend bank
restructuring move would be "substantial" as those banks
accounted for 18 percent of the country's banking industry
assets.
It also noted that the nine banks to be recapitalized by the
government currently controlled some 10 percent of total assets,
the 38 closed banks held 5 percent and the seven nationalized
banks had 3 percent.
Referring to the politically controversial decision to take
over rather than close seven of the sick banks on the grounds
that they had extensive branch networks, Standard and Poor's said
it "may have been the optimal choice" given the 1997 bank run.
The nationalization of the seven banks and recapitalization of
the other nine implied that the government would have direct and
indirect majority control over 75 percent of the banking sector.
"The recapitalization exercise also marks the effective
nationalization of the Indonesian banking sector," it said.
Recapitalizing the banking sector was the best available
choice for the government as the industry suffered a negative
capital adequacy ratio (CAR) of 12.9 percent at the end of 1998.
CAR is the ratio of equity to risk-weighted assets.
"While a positive development, the current recapitalization
exercise fails to replenish the sector's risk-weighted capital
adequacy ratio position to the regulatory 8 percent level
prevailing before Indonesia's economic crisis," the agency said.
The government aims to boost the nine banks' CAR to 4 percent
after their recapitalization is completed. The government will
provide 80 percent of the recapitalization funds, while the bank
owners have to come up with the remaining 20 percent.
"The government's near-term goal of 4 percent CAR is
inadequate given the operating risks facing banks in Indonesia,"
Standard & Poor's said.
On the 73 banks listed by the government as qualifying to
survive on their own because they were able to meet the four
percent CAR, Standard and Poor's said although they appeared to
meet the mandatory requirements "it is likely that such banks
will need to partake of the government's recapitalization
exercise in the near term." (rid)