BI warns 30 small banks of minimum capital deadline

Urip Hudiono, The Jakarta Post, Jakarta

The central bank has identified 30 banks that have capitalizations of less than the minimum requirement of Rp 80 billion (US$8.8 million), and has warned them to comply with the requirement by the end of September through capital injections or mergers with other banks.

Of the 30 banks, Bank Indonesia Deputy Governor Siti C. Fadjrijah said seven would be unable to fulfill the requirement at all, while nine others would face difficulties in doing so as they had yet to secure commitments from new investors or their owners to inject fresh capital.

Three other banks had received such commitments, while a remaining 11 banks would likely have no difficulty in meeting the deadline as they already had capitalizations of some Rp 70 billion.

BI will require all the banks to submit their latest business plans and strategies for satisfying the minimum capital requirement, Fadjrijah said. They would also be required to have made all the necessary arrangements for complying with the requirement -- including any merger plans -- by the end of September.

Fadjrijah warned that the central bank would impose sanctions on those banks that failed to satisfy the requirement by the deadline, on time, and said they could be forced to submit to takeovers by the country's major anchor banks.

"We could ask the anchor banks to take over all of them. If the plan for voluntary mergers among the smaller banks does not work out, then we will ask the anchor banks to step in," Fadjrijah was quoted by detik.com as saying Friday at a bankers' seminar in Bali.

As part of effort to consolidate the country's banking sector in line with the so-called Indonesian Banking Architecture (API) blueprint for the industry, BI is requiring all banks to have minimum capitalizations of Rp 80 billion by the end of this year, and Rp 100 billion by the beginning of 2010. It is also requiring investors planning to establish new banks to provide a minimum capital of Rp 3 trillion.

BI Deputy Governor Muliaman D. Hadad had earlier said that 37 banks had capitalizations of less than Rp 100 billion as of the end of March, compared to 44 at the end of March last year. Total industry capitalization as of end of March stood at Rp 195.67 trillion, compared to Rp 173.22 trillion at the end of March the previous year.

The central bank wants to reduce the number of banks from 130 at present to 70 financially sound banks by 2010.

According to BI's plan, the industry will consist of three international-standard banks with capitalizations of more than Rp 50 trillion, and five national banks with capitalizations of at least Rp 10 trillion, with the rest being regional, cooperative and rural savings banks with capitalizations of at least Rp 100 billion.

BI is also promoting the emergence of a number of so-called anchor banks to lead the consolidation process through a process of mergers and acquisitions. These will be banks with minimum capital adequacy ratios of 12 percent and net non-performing loans ratios of 5 percent.