Bank divestment continues<\/p>\n
The House of Representatives should approve immediately the
\ngovernment's request to sell its remaining stakes in four private
\nbanks that were nationalized at the height of the economic crisis
\nin 1998. Additional divestment will not only help plug the big
\nhole in the state budget, but will also speed up the
\nrestructuring of the banking industry ahead of the phasing out
\nearly next year of the government's blanket guarantee on bank
\ndeposits and claims.<\/p>\n
Narrow-minded nationalists may oppose the divestment programs,
\ngreatly concerned that foreign investors would further entrench
\ntheir control of the country's largest banks. They have also
\ncriticized the bank share sales for failing to procure high
\nprices due to weak market response.<\/p>\n
These arguments, however, seem to make little sense.<\/p>\n
First of all, the shares sales will be made through the local
\nstock market. Additional divestment at the four banks -- Bank
\nCentral Asia (BCA), Bank Danamon, Bank Niaga and Bank
\nInternasional Indonesia (BII) -- will help the Indonesian Bank
\nRestructuring Agency (IBRA), which will face the end of its
\nmandate later this month, achieve this year's Rp 5 trillion
\nrevenue target.<\/p>\n
The issue of foreign control is irrelevant anyway, as majority
\nshares in the four banks already belong to foreign investors from
\nthe United States, Singapore, South Korea and Malaysia, which
\nhave clinched their acquisition deals with the government over
\nthe last two years.<\/p>\n
In fact, in striking contrast from government-controlled
\nbanks, the four public banks have accelerated their restructuring
\nprograms under their respective majority shareholders. While
\nstate banks such as Bank Negara Indonesia (BNI) and Bank Rakyat
\nIndonesia (BRI) were plagued with lending scandals and Bank
\nMandiri threatened with more bad loans, foreign-controlled banks
\nhave hastened consolidation and strengthened good governance.<\/p>\n
Moreover, the government will certainly get much higher prices
\nfor the additional shares they will sell, due to the significant
\nimprovements in the banks' shareholder value under their new
\nowners and the bullish sentiment prevailing at the Jakarta Stock
\nExchange (JSX).<\/p>\n
The fear of \"market glut\" -- some analysts foresee that large
\nbank shares will be dumped on the market within a short period of
\ntime -- seems groundless. The government will divest, through
\ndrip sales on the JSX, only between 1.48 and 7.85 percentage
\npoints of its remaining stakes in the four banks -- 6.48 percent
\nat Bank BCA, 28.35 percent at Bank Danamon, 26.15 percent at Bank
\nNiaga and 22.49 percent at BII.<\/p>\n
This is separate from the other government proposal to sell 71
\npercentage points of its 97.17 percent equity holding in Bank
\nPermata to strategic investors within the next few weeks.<\/p>\n
It is obviously not valid to compare the prices of banks here
\nthan, say, those in Thailand and South Korea, because the
\ncondition of domestic banks simply reflects the overall economic
\ncondition.<\/p>\n
Our dilemma is that the longer government divestment is
\npostponed, the more vulnerable the banks will be to another wave
\nof financial distress, especially in light of the government
\npolicy to phase out its blanket guarantee early next year.<\/p>\n
Phasing out the guarantee will certainly force a tougher
\nconsolidation of banks, as market forces will be more stringent
\nin screening them. The national banking plan recently launched by
\nBank Indonesia for implementation within 10 years will further
\naccelerate the consolidation process through mergers.<\/p>\n
The government is well advised to phase out its direct
\ninvolvement in the banking industry and instead focus its
\nattention and resources on further strengthening the regulatory
\nand supervisory systems for the financial service industry.<\/p>\n
Experiences in many other countries point to the great
\ncontribution reputable, major international banks have made in
\nthe development of good governance within the domestic financial-
\nservice industry.<\/p>\n
True, foreign investors' entry into major domestic banks does
\nnot automatically ensure the development of a sound, strong
\nbanking industry; nor should divestment at state-controlled banks
\nbe considered an end in itself, but rather an important stepping-
\nstone to creating a sound financial system.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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