RI banking reform good opportunity for investors

RI banking reform good opportunity for investors

SINGAPORE (Reuters): Bank reform consultant Howard Silverfarb
has a theory about business opportunities -- "When things go bad,
that's the place to go."

In the past three weeks he has sold his antique collection,
bed linen, air conditioners, all but the kitchen sink, so he can
head to where things are really bad -- Indonesia.

For Silverfarb's Banking Reform and Reconstruction Corp,
Indonesia beckons with its more than 200 battered banks and a
seriously distressed banking system crying out for a complete
overhaul.

The banking sector is one of Indonesia's gravest economic
problems, and the Indonesian Bank Restructuring Agency (IBRA),
tasked with reviving it, has taken over the management of several
troubled banks and will decide on their future.

Silverfarb's firm has IBRA as one of its clients and hopes to
step in to provide management expertise after international
accounting firms complete reviews to determine the health of the
banks.

"With the strengthened infrastructure and sound leadership --
and a smaller, more prudent and better regulated banking system
-- there can be little doubt about the country's future,"
Silverfarb told a seminar of the Indonesian Business Association
of Singapore last week.

"In the meantime, and for a long time after the inevitable
recovery, opportunity awaits the intrepid entrepreneur or
investor."

Silverfarb is bullish about the recovery of Indonesia's
banking system, although he thinks the process will be painful,
drawn out and only about half the country's 200 banks are likely
to survive.

"It is still very much up in the air," he told Reuters in an
interview on Wednesday. "At least half of the banks will have to
be merged and liquidated and in the end we may come down to a
total number that is even less than 100."

Indonesia and the International Monetary Fund (IMF), which
organized a $41.2 billion rescue package, last week said a review
had been completed for six banks the IBRA took over in April.

Portfolio reviews for an additional 32 IBRA banks and 15 non-
IBRA banks were scheduled to be completed by the end of July
while reviews for all other banks would be completed by the end
of October 1998.

Silverfarb said the issue confronting Indonesia was not the
number of banks that remained, but what the Indonesian economy
required to meet its banking needs.

He declined to estimate how much it would take to recapitalize
Indonesia's banks, but said it needed a massive international
funding effort, coming largely from the United States and Europe
through international agencies like the World Bank and the IMF.

"It's going to be quite a lot and depend on the results of the
due diligence. It's hard to estimate and will certainly be a good
deal more than the package put together by the IMF," he said.

Silverfarb said interest from international commercial banks
in taking stakes in selected Indonesian banks was already
evident.

"There are bargain prices when it comes to purchasing banking
institutions. That is happening already, the fundamentals in
Indonesia are strong," he said.

One hurdle was overcoming the resistance of the Indonesian
people to foreign interference and possibly foreign control of
their financial institutions, he said. Another was to get
Indonesians to change their ways.

"There is a great deal of reluctance to merge and have to
share management responsibilities, also there is not much past
practice of closing institutions, the safety net is not there,"
he said.