Jakarta – Indonesia Tuesday announced a bank recapitalisation program to restore the ailing banking sector back to health.

"The aim of the recapitalisation is to retain (banks) which has a prospect of surviving and develop, and also primarily to accelerate economic restoration through a restructurisation of their ownership", Bank Indonesia Governor Syahril Sabirin said.

He said the program would cover all banks except those with a capital adequacy ratio (CAR) of more than four percent. Sabirin said banks currently under the treatment of the Indonesian Bank Restructuring Agency (IBRA) and those not under its supervision were eligible under the program.

The government is currently undertaking due diligence on all banks to calculate the funds needed. Banks with a CAR of below four percent and above minus 25 percent must join the recapitalisation program, Sabirin said.

Those with a CAR of lower than minus 25 percent would be given the opportunity to strenghten their capital or improve the quality of their productive assets so that they can move to the eligible category. "If they cannot, banks in this category will be jointly settled by Bank Indonesia and IBRA," Sabirin said without elaborating.

Sabirin said banks would be required to submit a business plan within one month detailing problematic loans, forecasts for the next three years and their intention to meet all prudency regulations. Once the plan is approved, the owners of the banks would be asked to pay back any state liquidity they had taken and used, and to strengthen their capital. The government, Sabirin said, will provide up to 80 percent of the fresh capital injection.