Weak banks have 'no choice but to merge'
Weak banks have 'no choice but to merge'
BOGOR (JP): Financially weak banks have no choice but to merge
with larger banks if they want to escape from being closed by the
government, a senior bank executive said.
Arwin Irsyad, Bank Danamon's president, said on Thursday that
many banks would face difficulty in meeting the minimum capital
adequacy ratio (CAR) requirement by the end of this year.
For most of them, raising fresh funds from existing
shareholders or new investors to improve their capital ratio
would be quite difficult due to high investment risks in the
banking industry, he added.
"It is therefore important for them to consider a merger plan
with larger banks, or be closed by the government," he said to
journalists at a banking workshop.
Indonesian banks should have a CAR of at least 8 percent by
the end of this year to comply with the minimum capital level
imposed by Bank Indonesia.
But the central bank indicated recently that at least 20 banks
would not be able to meet the requirement, due to their worsening
business activities.
Most of the banks' shareholders were unlikely to be able to
inject fresh funds, while the government has ruled out the
possibility of bailing them out.
"Merging with other banks would therefore be the only
alternative left to enable them to survive," Arwin added.
In addition to having at least an 8 percent CAR level, banks
were also asked to reduce their non-performing loan (NPL) level
to a maximum of 5 percent by the end of this year.
Arwin said that the central bank might allow the banks to have
an NPL of slight higher than 5 percent.
"But the tolerance given by the central bank to have an NPL of
more than 5 percent would not be able to save them from the
threat of closure," he said.
According to Arwin, many banks still have an NPL of more than
18 percent.
Arwin acknowledged that despite these financial problems, many
bank shareholders still refused to merge their banks due to the
fear of losing ownership and control.
Bank analyst from Indosuez WI Carr Securities Mirza
Adityaswara said that given the reluctance of bank shareholders,
the central bank should issue a special rule forcing the weak
banks to merge.
The government has issued around Rp 430 trillion worth of
bonds to finance the recapitalization of 27 banks, including four
state-owned banks, several regional development banks, and the 11
private banks.
The central bank has recently warned that several of banks
under the control of the Indonesian Bank Restructuring Agency
(IBRA) might fail to meet the year-end CAR requirement, and urged
the government to merge the banks to avoid the greater costs that
would result from the bank closure alternative.
But Finance Minister Prijadi Praptosuhardjo said that merging
banks was not an easy process due to the complexity of the banks'
problems. (05)
BOGOR (JP): Financially weak banks have no choice but to merge
with larger banks if they want to escape from being closed by the
government, a senior bank executive said.
Arwin Irsyad, Bank Danamon's president, said on Thursday that
many banks would face difficulty in meeting the minimum capital
adequacy ratio (CAR) requirement by the end of this year.
For most of them, raising fresh funds from existing
shareholders or new investors to improve their capital ratio
would be quite difficult due to high investment risks in the
banking industry, he added.
"It is therefore important for them to consider a merger plan
with larger banks, or be closed by the government," he said to
journalists at a banking workshop.
Indonesian banks should have a CAR of at least 8 percent by
the end of this year to comply with the minimum capital level
imposed by Bank Indonesia.
But the central bank indicated recently that at least 20 banks
would not be able to meet the requirement, due to their worsening
business activities.
Most of the banks' shareholders were unlikely to be able to
inject fresh funds, while the government has ruled out the
possibility of bailing them out.
"Merging with other banks would therefore be the only
alternative left to enable them to survive," Arwin added.
In addition to having at least an 8 percent CAR level, banks
were also asked to reduce their non-performing loan (NPL) level
to a maximum of 5 percent by the end of this year.
Arwin said that the central bank might allow the banks to have
an NPL of slight higher than 5 percent.
"But the tolerance given by the central bank to have an NPL of
more than 5 percent would not be able to save them from the
threat of closure," he said.
According to Arwin, many banks still have an NPL of more than
18 percent.
Arwin acknowledged that despite these financial problems, many
bank shareholders still refused to merge their banks due to the
fear of losing ownership and control.
Bank analyst from Indosuez WI Carr Securities Mirza
Adityaswara said that given the reluctance of bank shareholders,
the central bank should issue a special rule forcing the weak
banks to merge.
The government has issued around Rp 430 trillion worth of
bonds to finance the recapitalization of 27 banks, including four
state-owned banks, several regional development banks, and the 11
private banks.
The central bank has recently warned that several of banks
under the control of the Indonesian Bank Restructuring Agency
(IBRA) might fail to meet the year-end CAR requirement, and urged
the government to merge the banks to avoid the greater costs that
would result from the bank closure alternative.
But Finance Minister Prijadi Praptosuhardjo said that merging
banks was not an easy process due to the complexity of the banks'
problems. (05)