Two more banks closed by govt

Two more banks closed by govt

JAKARTA (JP): The government moved on Friday to close down two
joint-venture banks and take over Bank Niaga in its final round
of restructuring measures for the ailing banking industry.

Bank Indonesia Governor Sjahril Sabirin said on Friday joint-
venture Bank Indovest and Bank LTCB Central Asia would be closed
down because their owners failed to recapitalize the banks by the
April 21 deadline.

"Shareholders of Bank Indovest failed to put up additional
capital to meet the minimum 4 percent capital adequacy ratio, so
it has to be closed down," he said.

Under the country's bank recapitalization program, designed to
lift banks capital adequacy ratio (CAR) to the minimum 4 percent
level, joint-venture banks are not entitled to any government
funding facility, unlike domestic private banks which receive up
to 80 percent of their recapitalization funding requirement from
the government.

CAR is the ratio between equity capital and risk-weighted
assets.

Sjahril said based on the 1998 due diligence audit, out of 32
joint-venture banks in the country, 15 banks posted a CAR level
equal or more than 4 percent, and 17 banks had a CAR level below
4 percent.

He said only Bank Indovest and Bank LTCB had failed to meet
the recapitalization requirements.

Publicly listed Bank Indovest is a joint-venture between
state-owned Bank Dagang Negara (51 percent), Japan's Bank of
Tokyo Mitsubishi (18.14 percent), Nikko Merchant Bank (17.43
percent) and the public (13.43 percent).

Bank LTCB is a joint-venture between Japanese Long Term Credit
Bank (75 percent) and Bank Central Asia (25 percent).

On March 13, the government undertook major bank measures: 38
banks were closed down, seven taken over and nine private banks
were to be recapitalized.

The 38 banks did not qualify to join the government bank
recapitalization program, while the other seven banks were
scheduled for takeovers because of their importance to the
industry and the cost factor involved in closures.

The government set April 21 as the deadline for all remaining
banks to meet the recapitalization requirements.

The nine private banks joining the government recapitalization
program have to provide their 20 percent recapitalization funding
portion in cash, but joint-venture banks have to provide the full
recapitalization funding without government help.

Banks not requiring recapitalization, because their CAR level
was above or equal to the minimum 4 percent level based on the
1998 due diligence audit, had to submit business plans.

Reshuffle

Sjahril said the central bank would ask some of the 74 banks
not requiring recapitalization to implement a major reshuffle in
management and ownership, because some of their shareholders and
members of their board of commissioners and directors failed to
pass the "fit and proper test".

He declined to provide further details.

"The important thing is that we already have the list of
people who should be blacklisted from the banking industry."

Sjahril said the government decided to take over Bank Niaga,
which had originally qualified for the government-sponsored
recapitalization program, because the owners had declined to
provide the 20 percent funding requirement by the April 21
deadline.

He said several foreign investors were still in the
negotiation process with Bank Niaga shareholders to provide the
20 percent recapitalization funding requirement.

He said Bank Niaga was having difficulties providing the 20
percent funding requirement because the bank lacked a majority
shareholder.

"Because Bank Niaga is a big bank with a good reputation, we
will take over the bank temporarily to allow the bank to
negotiate with would-be investors."

"I'm confident that foreign investors will participate in the
recapitalization of the bank," he said, drawing attention to
Thursday's landmark deal made by the U.K.-based Standard
Chartered Bank, which injected US$56 million into the publicly
listed Bank Bali to finance its recapitalization requirement.

Bank Niaga said on Thursday it had backed off, because it
disagreed on the terms and conditions of the recapitalization
program.

Bank Niaga and Bank Bali are among nine private banks to be
recapitalized. The other banks are publicly listed Bank Lippo,
Bank Internasional Indonesia, Bank Universal, non-listed Bank
Bukopin, Bank Artha Media, Bank Prima Express and Bank Patriot.

Sjahril said except for Bank Niaga, all eight banks had
deposited their recapitalization funding requirement.

But he said the banks might have to provide more funds, as the
recapitalization funding needs might have increased over the past
four months.

Sjahril said according to the 1998 due diligence audit, the
nine banks as of December needed Rp 21.3 trillion to bring their
CAR level up to the 4 percent minimum level.

"We are still conducting a reaudit on the nine banks, but the
funding requirement may be larger."

Analyst said the funding requirement would most likely be
larger, because the negative interest rate spread has continued
to eat up capital since January.

Sjahril said any additional funding requirements would be
first offered to the bank owners or other investors to fulfill
before the government assumed the additional costs.

The government is planning to issue about Rp 300 trillion in
bonds to finance the bank recapitalization program. The
government will fully finance recapitalization of the seven state
banks, 27 provincial development banks and 12 banks which have
been taken over, including Bank Niaga.

The bonds are expected to carry two types of interest rates --
a market rate and a fixed rate. (rei)