Sound banks' minimum capital cut to Rp 250 billion from Rp 1 trillion
JAKARTA (JP): Sound commercial banks will be allowed to operate with minimum capital of Rp 250 billion by year's end, down from a requirement of Rp 1 trillion, Minister of Finance Fuad Bawazier said Thursday.
He defined sound commercial banks as those which had cleared their balance sheets of nonperforming loans.
Banks unable to solve their problem loans would still be required to book minimum capital of Rp 1 trillion, Fuad added.
The new ruling is intended to provide an incentive for banks to clean up their tangled assets.
"Let's be honest that our banks have huge problems with their loan quality. It's better to clean them up," he said at Bank Indonesia headquarters.
Independent accountants and Bank Indonesia would scrutinize banks seeking to qualify for the new requirement.
In January, the government increased minimum capital requirements for commercial banks to Rp 1 trillion by the end of 1998, Rp 2 trillion by the end of 2000, and Rp 3 trillion by the end of 2003.
Banks had predicted difficulties of recapitalizing themselves in times of depleted confidence in the country's economy. The move had been expected to spur mergers among small and medium banks, or pursue self-liquidation.
Djoko Sarwono, head of the banking supervision department at Bank Indonesia, said the new ruling was made following appeals by bankers that the Rp 1 trillion requirement was difficult to meet.
The new requirement would also force banks to be careful in lending to minimize the level of poorly performing loans.
Djoko said banks now had to allocate more funds for problem loans provisions, constituting 100 percent for bad loans, 50 percent for doubtful loans and 15 percent for less productive loans.
Only liquid funds may be used as nonperforming loan provisions, he added.
Bank Indonesia Governor Sjahril Sabirin said Thursday that most banks in the country had received liquidity credits from the central bank to survive the current tight liquidity situation in the banking system.
Bank Indonesia disbursed a substantial amount of liquidity credit in December and January, when most banks suffered serious liquidity problems as bank customers withdrew their funds.
Sjahril declined to disclose the amount of credits disbursed but some estimates have put the figure at Rp 55 trillion, with one claiming it was more than Rp 100 trillion.
He spoke are installing two Bank Indonesia directors: Dono Iskandar, former secretary-general of the Ministry of Finance, and Achjar Iljas, former head of the economic and monetary policy research department at the central bank. They replaced Haryono and Mukhlis Rasjid.
Sjahril said the central bank would continue to maintain its high interest rate policy to shore up the rupiah's value.
He conceded that the high interest rates penalized banks and corporations, and would force more business activities to a halt.
"But it is more difficult for them to operate in a very fluctuative exchange rate climate. So, it has become a top priority for the central bank to stabilize the rupiah exchange rate," he said.
Some analysts say the rupiah could drop to the 10,000 level once the central bank cuts rates for its short-term promissory notes. Interest rates on two-day SBIs are set at 41 percent, three-to-six day SBIs at 42 percent, one week at 43 percent, two- week at 43 percent and one month at 45 percent.
Separately, the International Monetary Fund (IMF) director for the Asia-Pacific, Hubert Neiss, said the monetary policy could be relaxed after currency markets stabilized.
Neiss told Reuters that "confidence will gradually be restored and things will turn around" if the reforms package was implemented seriously.
"Whether this occurs in the second quarter, the third quarter or even later is very difficult to predict today."
He said the tight money policy was necessary to contain inflation. "This is what people call stopping the printing presses," he said. "Now this will mean high interest rates, even higher than they already are. (aly/rei)