State bank mergers to be finalized before next March

JAKARTA (JP): Minister of Finance Mar'ie Muhammad said here yesterday the state-owned bank merger process would be finalized before the next cabinet was formed next March.

"We don't want to burden the next finance minister with the merger problem. We have to finalize it during the next seven months before the next cabinet starts its duties," he said at a hearing of House Commission VII for finance, trade, cooperatives and logistics.

At the hearing, commission members criticized the government for the slow process of the state-owned bank mergers.

Mar'ie said the merger plan was approved by President Soeharto, but the ministry had not decided how to do it yet.

"We're still working on it," he said.

He said the ministry was considering three ways of merging the seven banks -- Bank Bumi Daya, Bank Dagang Negara, Bank Ekspor Impor Indonesia, Bank Negara Indonesia, Bank Pembangunan Indonesia, Bank Rakyat Indonesia and Bank Tabungan Negara.

He said the seven could be merged into new banks, some could be merged into the others, or some could be made subsidiaries of the others.

Laksamana Sukardi, an associate director the Econit economic research group, said mergers were not the best way to improve the performance of the state banks.

"I think the main problem is the state banks need to change their mentality and to improve their entrepreneurial skills," he said while presenting Econit's mid-year review 1997.

He said mergers would not improve performance unless the state banks changed their outlook.

"The way to do it is by listing them on the capital markets," he said.

"Listing will force them to pursue efficiency," he said.

He said their mentality and business ability caused their inefficiency, non-performing loans, inadequate management and reckless banking practices.

As a result state banks' market share had decreased to about 30 percent from more than 80 percent 10 years ago.

"In five years their market share will drop to only five percent unless they improve their performance," he said at the presentation, which was also attended by Rizal Ramli, Econit's other associate director.

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 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 that 4.65 percent of the Rp 111 trillion credit extended by the seven state banks as of 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. (bnt)