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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

THE ASIAWEEK FINANCIAL 500
FIXING THE BANKS

Page 3

CAPITAL VS. CONTROL


THE WAY OUT OF the trouble is not nearly as straightforward as was the way into it. In some countries, healthy banks can look after ailing ones or wealthy conglomerates can help. Japan's Sakura Bank (No. 7), asked members of its keiretsu business group, including Toyota and Mitsui & Co., to supply more than $2 billion in capital. That's not possible in Indonesia. Instead, banks must seek capital from outside investors. "The Indonesian government can't provide the equity," says Booz, Allen & Hamilton banking expert Mark Hansen. "The private sector does not have the equity. Therefore, you are either going to have some recapitalization funding through multilateral agencies or through government agencies in the U.S., Japan or Europe. But I don't think that's likely. Frankly the only other source is the international investor."

Given the dismal state of Indonesian banks, this is a little like trying to sell factory seconds at designer-label prices. "There is no such thing as a healthy bank in Indonesia," grumbles Hendiarto, an assistant vice president of Bank Universal (No. 404), the 19th-biggest Indonesian bank. "If there is one that says it is [healthy], I'd say it's just cosmetic." Universal is not exactly healthy, but it is less sick than many others in Indonesia. Even so, the company is having a hard time attracting capital. Says Hendiarto: "The situation is like somebody who wants to marry someone with terminal cancer. Of course, you'd think more than twice about it." One other problem has been a law prohibiting foreigners from owning more than a 49% stake in a domestic bank. The government has recently said it will lift the restriction, but that won't change things immediately.

It is doubtful, anyway, that foreign investors can recapitalize a virtually bankrupt banking system. Banking analysts believe the local industry is in for a two- to three-year wait before foreign investors are willing to take the risk. Still, the International Finance Corp., the finance arm of the World Bank, has shown some interest in Indonesia. Rashad Kaldany, the bank's director for South and Southeast Asia, said recently that he has been following closely the stock performance of several banks. "We don't want to take over all the banks," he says. "But, yes, at the moment we are working on buying a bank." The IFC has loans in Indonesia totaling nearly $1 billion.

Of course it is not just a question of whether foreigners want to buy Asian banks. Do Asian governments want them to? Thailand has come up with a temporary solution to the issue of foreign control over its banks: It will allow majority foreign ownership - for 10 years. The Bank of Asia (No. 310) took exactly that tack when it sold 75% of its operation to Dutch banking giant ABN-Amro. ABN paid $183 million for the share and pledged to buy the remainder in the year 2000, based on the bank's book value at the time. Singapore's DBS Bank bought just over half of Thai Danu Bank (No. 332) for $146 million. A smaller Thai institution, Nakornthon Bank (No. 388) is in negotiations with the Bank of Nova Scotia over a buyout.

A few Thai banks have successfully attracted investors without giving over the keys to the vault. The two biggest banks, Bangkok Bank (No. 55) and Thai Farmers Bank (No. 103), have been winners. The former attracted nearly $1 billion in a share issue after a road show in Asia, the United States and Europe; the latter drew in some $800 million. But industry experts say both banks will need to raise more cash to survive.

Page 1 | Page 2 | Page 3 | Page 4


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