State bank merger plan approved

JAKARTA (JP): President Soeharto approves the finance ministry's and central bank's plan to merge the seven state banks into a smaller number to strengthen their competitiveness, Finance Minister Mar'ie Muhammad said yesterday.

"The President knows the plan well (to merge the banks) and approved it in principle," Mar'ie said after reporting the plan to President Soeharto.

Rumors about a merger of the seven state banks had circulated over the past few weeks. Both Mar'ie and Bank Indonesia's Governor Soedradjad Djiwandono recently confirmed that the possibility was being studied, but declined to give details.

"We are still studying technical details such as which banks will be merged. The final outcome may not only result in bank mergers but may also end with some state banks owning subsidiaries," Mar'ie said.

The seven state banks are Bank Rakyat Indonesia, publicly listed Bank Negara Indonesia 1946, Bank Dagang Negara, Bank Tabungan Negara, Bank Expor Impor Indonesia, Bank Bumi Daya and Bank Pembangunan Indonesia.

According to Bank Indonesia (the central bank), the seven state banks had combined total assets of Rp 213.3 trillion (US$87.59 billion) and combined capital of Rp 13.3 trillion as of the end of March.

Combined total credits extended by the seven state banks as of last March was Rp 111 trillion, and third party funds raised by the banks stood at Rp 108.6 trillion.

Their combined before-tax profit for the first three months of this year was Rp 2.7 trillion.

Minister Mar'ie said that some of the state banks were good and some not so good. Because of this, the government felt it necessary to pool their resources.

A central bank official who preferred anonymity revealed yesterday that 4.65 percent of the Rp 111 trillion credit extended by the seven state banks as of last March, or Rp 5.2 trillion, was classified as bad loans. This represented a significant decline from their Rp 7.07 trillion bad credits as of last November.

"Such a significant reduction in bad loans should be attributed to the hard work of the central bank's supervision team on bad loans," the official said.

But he rejected the notion that the planned merger was driven by large bad loans at several state banks.

He said the planned merger was to strengthen their capital base in the face of financial market globalization. (rid)