Small banks may be forced to merge: Mar'ie

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)