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After a lengthy tug of war between the government and bankers over how to settle outstanding debt in the form of Bank Indonesia Liquidity Assistance (BLBI), finally the government allowed the banks to repay their debt in cash within a year. During that period, the economy is expected to improve and the condition is more favorable for the banks to sell their assets at a reasonable price to meet their liabilities. This is not just for the interest of the debt ridden banks but also for the interest of the government in its attempt to build up a better image abroad.

Meanwhile, the government remains in control of the assets given by the banks as collaterals for the BLBI. Agreements have been reached between the government and a number of company groups to settle the debts with cash and shares. In the mean time the banks are to chart a working plan for the selling of the assets with the approval of the government in this case the National Banking Restructuring Agency (BPPN).

The decision will also allow BPPN to have a more correct valuation of the assets it has received.

Attorney General Andi M Ghalib has said that the central bank and BPPN had different figures for the amount of BLBI given to the 14 banks involved. The 14 banks include 10 BBO whose operations have been frozen and 4 BTO which have been taken over by the government. BPPN said that BLBI amounted to Rp 50,693 trillion received by the BBO and Rp 67.879 trillion for BTO or a total of Rp 118.572 trillion. According to Bank Indonesia, the amounts were Rp 57,014 trillion for BBO and Rp 70.205 trillion for BTO or a total of Rp 127.219 trillion.

The assets already handed over by the BBO and BTO were valued at about Rp 166.146 trillion including Rp 79.636 trillion by BBO and Rp 86.5 trillion by BTO. According to BPPN, after being deducted with the assets the BBO and BTO still have Rp 47 trillion left to be settled. But according to Bank Indonesia the remaining debt would be Rp 38 trillion.

BBO and BTO already paid Rp 2 trillion in cash according to the attorney general including Rp 680 billion paid later by BDNI.

Earlier Finance Minister Bambang Subianto also acknowledged difference in the valuation of the assets between the banks and BPPN. BPPN said that the assets were worth only Rp 92.8 trillion and the bankers said their assets were worth Rp 206 trillion including the Rp 2 trillion they have paid in cash.

BPPN valued the assets not more than 60% of the value claimed by the banks. Some were even valued only at 10% of the value claimed by the banks.

The finance minister, therefore, has not signed the agreement on the transfer of the BLBI from Bank Indonesia to the finance ministry. The finance minister has asked BKPK, the financial watchdog for government development projects, to help in the valuation.

The banks have been divided into six categories. The first is a BTO bank which has repaid its entire debt namely BCA, the second are those not violating the lending limit regulation (BMPK) but were in problem because of a run on bank namely Bank Tiara and PDFCI; the third is a BTO bank not yet repaying its entire BLBI debt namely Bank Danamon; fourth are BTO banks which have repaid their entire BLBI debts namely Bank Surya and BDNI, the fifth is a BBO not violating BMPK but in problem only because of a run on bank namely Bank Subentra and the sixth are BBO banks not yet repaying their BLBI debt namely Bank Modern, Hokindo, Deka, Centris, BUN, Istismarat and Pelita.

BPPN said that BCA, Danamon, Tiara and PDFCI will be restructured through recapitalization by converting part or the entire BLBI with capital. In addition, part of the assets of the banks will be transferred to Asset Management Unit (AMU) where the banks will receive bonds issued by the government in compensation for the assets. BPPN also plans to make Bank Danamon as a reference for national banking. For that purpose the government will make recapitalization including by transferring assets to AMU that Bank Danamon could meet the international standards.

The attorney general has said that President B.J. Habibie wanted the BLBI repaid in cash. Therefore, the government has given the bankers one month to propose a business plan including contracts with prospective buyers of the assets. But although the government insisted that repayment should be in cash, the assets will remain under the control of the government to keep it from being sold to foreign investors.

The finance minister has announced that the government in this case the Financial Sector Action Committee (FSAC) has reached an agreement with the Salim Group that owned BCA, Gajah Tunggal Group that owned BDNI and Sudwikatmono who owned Bank Surya on the combination of cash and shares as a payment for the BLBI.

Earlier it was reported that the government had taken control of 30% of the shares of PT Astra International, as a repayment for BLBI received by its shareholders. The three tycoons handing over the Astra shares included Usman Admadjaja, who held 9.25% of Astra shares through PT Gentala Sanggrahan, Liem Sioe Liong who held 9.27% of the shares through PT Indo Astra Boga and Bob Hasan who held 10% through PT Nusamba. That made the government the largest shareholder of Astra.

Syahril Sabirin has said that in the framework of recapitalization, Bank Indonesia has undertaken due diligence on 80 banks and the process is expected to be completed by the end of this month. Bank Indonesia has formed a banking Evaluation Committee (KEP) with seven members from the central bank. The committee will start work on October 5, 1998 to discuss the result of due diligence with each of the banks to take restructuring steps as outlined in the business plan. It is expected to be completed on November 20, 1998.

In order to speed up recapitalization, which is expected to be completed by the end of this year, the government split the banks into three groups. Category A are banks with a capital adequacy ratio (CAR) of 4% or higher not included in this program. Category B are those with a CAR of less than 4% to minus 25% required to take part in the program. Category C are those having a CAR of less than minus 25% given time 30 days to improve their CAR to be eligible to the program or promoted into Category B.

Banks failing to improve their CAR after 30 days would deal with Bank Indonesia and BPPN. The owners of banks in Category B showing good integrity and enough credibility are required to prepare their business plans in a month to determine steps to be taken in the next several years. The business plan, in addition to the actual condition of the banks should cover development plan for the next two or three years and the settlement of non performing credits.

After the business plan is approved by Bank Indonesia, the bank concerned is asked to repay its BLBI debt, increase capital or look for a new investor. For every addition of Rp 1 in capital by the owner or investor, the government will put up Rp 4 maximum that the capital participation of the government would come to 80% of the capital requirement for recapitalization.

In addition, the government will issue bond as capital to the bank concerned. The bank then issue convertible preference shares for the government which would have no voting rights for three years. The government could use its voting right for matters of strategic importance and if the business plan fails in its implementation.

In addition, the bank concerned could transfer non performing credits to BPPN with a nil book value. BPPN then will make an agreement with the bank to collect the credits through special working unit in the bank under the control of BPPN. Similarly, credits in doubt could be transferred to BPPN with a nil book value as long as it would not cause its CAR to shrink lower than minus 25%.
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Oct 12, 1998

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