Perbanas wants more time to find new capital

Ary Hermawan, The Jakarta Post, Jakarta

With around a dozen banks still struggling to meet the central bank's capital-adequacy deadline, an industry association has asked Bank Indonesia to consider extending the December deadline by at least another six months.

National Banks Association (Perbanas) chairman Sigit Pramono said he hoped the central bank would give more time to small banks to secure fresh capital so as to meet the minimum capital requirement of Rp 80 billion (about US$9 million) by December.

"The association would be very pleased if Bank Indonesia could extend the 2007 deadline by at least another six months," Sigit told reporters Tuesday.

"In the meantime, we will ask for commitments from the bank owners and investors to increase their capitalizations," he added.

While acknowledging that the central bank had given plenty of warning about the deadline, Sigit said that most investors nevertheless regarded it as being too tight.

"If there is a possibility of extending the deadline, we'd be more than happy to talk about it with BI," he said.

BI is requiring banks to comply with the minimum capitalization requirement by seeking fresh capital or merging with other banks as part of its effort to consolidate the banking sector under the Indonesian Banking Architecture (API) formula.

Under the scheme, the central bank is aiming at reducing the number of commercial banks from 130 at present to 70 by 2010, by 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.

However, the results of a survey published Monday show that twelve banks are struggling to meet the deadline.

These banks, whose capitalizations stood at only around Rp 50 billion as of March, had yet to secure any commitments for fresh capital or to agree to merge with other banks, according to the study, which was conducted by InfoBank magazine.

The study also found that a total of 26 banks have capitalizations of less than Rp 80 billion, but the other 14 are currently in the process of merging with other financial institutions.

Banks that fail to comply will face sanctions -- mostly in the form of restrictions on their expansion and operations.

Under the sanctions, such banks will not be allowed to open new branches, to disburse a single loan worth more than Rp 500 million, to hold third-party funds that exceed their capital by more than a factor of 10, or to engage in foreign exchange transactions.

Under the API scheme, by 2010 the banking sector will consist of three international banks with capitalizations of more than Rp 50 trillion and five national banks with capitalizations of between Rp 10 trillion and Rp 50 trillion.

In addition, there will be a number of specialized banks with capitalizations of between Rp 100 billion and Rp 10 trillion. The remainder will be made up of regional, cooperative and rural savings banks with capitalizations of at least Rp 100 billion.