No.31/100/Bgub

SWEEPING REFORMS OF THE BANK SYSTEM

The government of Indonesia today took a decisive step towards restructuring the private domestic banking system. It announced actions to recapitalize viable private domestic banks, while closing and taking over those that do not meet minimum financial requirements. "This is a sweeping set of fundamental reforms, designed to bring our banking system back to financial health," said Co-ordinating Minister Ginandjar Kartasasmita. "It is the culmination of months of careful evaluation and planning, conducted with support from the International Monetary Fund (IMF), World Bank, and Asian Development Bank (ADB). A key objective of these measures is to retain an important element of private ownership and management in the banking system.
"The actions undertaken today to deal with the 128 private domestic banks fall into four main groups (see attached table).

First are the Category A banks, numbering 73. The Government has determined that these banks meet Bank Indonesia’s minimum adequacy standards, and can compete effectively without any public financial assistance. Recent capital injections into these banks have already been verified and unanimously approved by the evaluation committees (Bank Indonesia, Ministry of Finance, IBRA). These banks will be reviewed regularly to ensure that they remain in good financial health and continue to observe all rules and regulations, focusing on three main criteria - their business plans, the "fit and proper" test of their owners, and the nature of any capital injections. The first full review will be conducted by April 21, and subsequent ones will be held every six months.

Second are 9 Category B Banks that have been determined as eligible for recapitalization by the Government to bring them to the minimum capital requirements. All of these banks (out of 48 banks originally in Category B) were chosen upon unanimous agreement by the evaluation committees, based on a thorough assessment of their financial position, quality of management, and future prospects. This evaluation process was conducted according to international best practice, with the assistance of international consulting firms, and in consultation with the IMF, World Bank, and ADB.

Owners of the 9 banks in this category will be given until April 21 to inject at least 20 percent of the banks’ capital requirements and enter into investment contract with the Government. The Government, in turn, will provide the remaining capital (up to 80 percent) in the form of bonds.

Third are 7 category B banks that have today been taken over by the Government (IBRA). These are the largest amongst the B Category banks, with extensive branch networks, and are being taken

over in the public interest to minimize disruption to the payments system. With 100 percent Government ownership, the former owners will have no role in the operation of these banks and, where considered necessary by IBRA, senior management will be replaced. Former owners will be required to settle excess connected lending, in line with the precedents set on previous occasions when banks have been taken over. These banks will be restructured speedily, to improve their financial performance, reduce their burden on the budget, and prepare them for privatization.

Fourth are the 38 banks that today have been closed. These banks - the 21 remaining Category B and all 17 C banks - are deeply insolvent, and have no prospect of regaining financial viability. They have therefore been shut. Their owners will be required to repay their concocted lending. All depositors’ accounts transferred, with immediate effect, to near-by branches of the following 5 banks: Bank BNI, BRI, BDN, BCA and Bank Danamon. Depositors will be able to access their accounts on Tuesday morning. The public is advised to read the Sunday newspaper for further details, including local telephone numbers that they can call if they have further questions.

Governor Sabirin reiterated today that all deposits in private domestic banks continue to be guaranteed by Government. "The deposit guarantee remains a cornerstone of Government policy", he said. "We would like to assure the banking public that these reforms will in no way affect the safety of their deposits". In explaining the actions implemented today, Finance Minister Subianto emphasized that these steps are a significant part of Government’s ongoing efforts to establish a safe, efficient, and competitive banking system. "We recognize that it will take some time and considerable effort to rebuild our banking system, but we are determined to stay the course", he said. To illustrate his point, he referred to the Government’s commitments to take further actions by April 21, including the comprehensive reviews of the A Banks and the recapitalization of the 9 Category B banks.

The cost of bank restructuring program, for the private banks as well as for the state banks will be significant, and are reflected in the 1999/2000 budget. Nonetheless, every effort will be taken to minimize these costs. Over the coming weeks, efforts to recover loans from recalcitrant debtors will be stepped up, especially at the state banks, which account for the bulk of the restructuring costs. In additions, IBRA will step up its collection efforts. "Now that IBRA’s Asset Management Unit is up and running and the legal framework is in place, we will begin to sell assets and aggressively pursue the collection of bad loans", said Mr. Glen Yusuf, Chairman of Indonesian Bank Restructuring Agency.

These bank reform efforts, together with the restructuring of the state banks, form the centerpiece of the broader recovery program. As this program is progresssively implemented, and corporate restructuring gains momentum, credit should begin to flow again to viable enterprises and help lay the foundation for a sustainable recovery.  

                                                                                    Jakarta, 13 March 1999



LIST OF BANKS CLOSED

1.     BANK SEWU

2. BANK PAPAN SEJAHTERA

3. BANK INDONESIA RAYA

4 BANK FICORINVEST

5. BANK CENTRAL DAGANG

6. BANK DHARMALA

7. BANK CIPUTRA

8. BANK SEMBADA ARTANUGROHO (SANHO)

9. BANK AKEN

10. BANK INTAN

11. BANK ALFA

12. BANK DEWA RUTJI

13. BANK KHARISMA

14. BANK UMUM SERVITIA

15. BANK ARYA PANDURTA

16. BANK SINO

17. BANK DANAHUTAMA

18. BANK BUDI INTERNASIONAL

19. BANK ORIENT

20. BANK SAHID GADJAH PERKASA

21. BANK DANA ASIA

22. BANK YAKIN MAKMUR (YAMA)

23. BANK ASIA PACIFIC (ASPAC)

24. BANK PUTRA SURYA PERKASA (PSP)

25. BANK PESONA KRIADANA

26. BANK BEPEDE INDONESIA

27. BANK MASHILL UTAMA

28. BANK DAGANG DAN INDUSTRI

29. BANK INDOTRADE

30. BANK BUMIRAYA UTAMA

31. BANK BAJA

32. BANK TATA

33. BANK LAUTAN BERLIAN INTERNATIONAL

34. BANK UPPINDO

35. BANK METROPOLITAN RAYA

36. BANK HASTIN INTERNASIONAL

37. BANK NAMURA INTERNUSA

38. BANK BAHARI           
                               
                                                                               
                                            JAKARTA, 13 MARCH 1999