Small banks may be forced to merge: Mar'ie

JAKARTA (JP): The government is likely to issue a new banking ruling to force small banks to merge in order to prevent them from collapsing.

Finance minister Mar'ie Muhammad said here yesterday the planned issuance of the ruling is under intense study.

"The planned ruling on the mandatory merging will be enforced if small banks continue ignoring the government's appeal to unite," he said while addressing a seminar on banking strategy in anticipating business opportunities in the current Five Year Development Plan (Repelita VI) period.

He said the new ruling would also cover activities relating to professionalism of banking management, especially for small banks.

The minister did not specify the criteria for the small banks or if the measure would be imposed only on the country's secondary banks which lack skilled workers and often face liquidity problems.

The measure will be in line with the government's commitment to provide better protection to bank clients, the minister said, adding that the collapse of a bank will not only cause a loss in bank clients but adversely affect the country's banking system as well.

Expansion

Speaking about the low projected banking expansion in the 1994/95 fiscal year, the minister said that it was reasonable since most banks in the country are still in the consolidation process.

"It is still reasonable even if we fail to meet the projected 17 percent growth," he said.

The country's banking industry has suffered a major setback in the last two years as a large number of their loans extended during the boom period of 1989 to 1991 turned sour.

Six of the country's seven state banks, whose lending accounts for around 50 percent of the country's total bank loans, recorded non-performing loans (bad and doubtful loans) of around 21 percent of their outstanding loans at the end of last year.

The minister, however, said that he was upbeat that the expected low growth of bank loans would not affect the mobilization of investment funds in the country as investors retain other financing sources such as the capital market.

Mar'ie also said that the government will continue to curb high inflationary pressure so that inflation can be kept below 10 percent.

Inflation reached 4.47 percent during the first five months of this year. (hen)