Decision on BCA status to come after deal closing<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
The government said it would wait until shortly before it
\nannounces the winner of the tender for a 51 percent stake in Bank
\nCentral Asia (BCA) to decide whether the bank would retain its
\nstatus as a local bank should a foreign investor win the bid.<\/p>\n
Director General of Financial Institutions, Darmin Nasution
\nsaid on Wednesday the government was still debating over what to
\nmake of BCA if it falls into foreign hands.<\/p>\n
\"We will answer them (the foreign investors) shortly before
\nthe decision is taken over who the winner will be,\" Darmin told
\nreporters after a hearing with the House of Representatives'
\nCommission IX, which oversees financial affairs.<\/p>\n
Two of the four final bidders for BCA are consortia led by
\nforeign investors, the British based Standard Chartered Bank Plc,
\nand U.S. investment firm Farallon Capital Management.<\/p>\n
Questions have surfaced as to whether or not BCA should retain
\nits local status if foreign investors take over the bank.<\/p>\n
At stake is the government's blanket guarantee scheme that
\ncovers banks' accounts should massive bank runs dry up liquidity.<\/p>\n
Darmin said that only local banks were eligible to join the
\nblanket guarantee program.<\/p>\n
Turning BCA into a foreign bank would mean it loses that
\nprotection, which could undermine public confidence in the bank.<\/p>\n
The bank had once been hit by massive runs during the 1997
\nfinancial crisis, forcing the government to spend over Rp 52
\ntrillion (about US$5 billion) in emergency liquidity loans.<\/p>\n
But while the government leaves the foreign bidders in the
\ndark over BCA's future status, it requires that they issue a
\n\"letter of undertaking\", with which the government can claim back
\nthe money it had spent on bailing out local banks.<\/p>\n
A source familiar with the sale process said that both,
\nStanChart and Farallon had refused to provide that letter.<\/p>\n
They would agree to it only after assuming managing control of
\nBCA, the source said.<\/p>\n
\"This is probably the reason why Bank Indonesia or the
\ngovernment has changed the format of letter of undertaking from
\nletter of guarantee to letter of comfort,\" the source said.<\/p>\n
According to him, StanChart has signed the letter of comfort,
\nwhich unlike the previous formats is not binding.<\/p>\n
The signing of the letter of comfort has become one of 17
\nprerequisites that bidders must meet to qualify for the BCA
\nstake.<\/p>\n
StanChart and Farallon have both expressed their wish to
\nretain BCA as a local bank, reasoning they planned no major
\nchanges in the bank.<\/p>\n
\"BCA will not become a foreign bank nor will it merge with any
\nforeign bank. BCA must be kept as one of Indonesia's national
\nbanks,\" said Farallon Asia Pacific director Raymond Zage in a
\npress statement.<\/p>\n
As the sale process for BCA is nearing its end, some also
\nquestioned whether it was appropriate to spend public funds on a
\nbank owned by foreigners.<\/p>\n
BCA relies heavily on interest rate earnings from government
\nbonds, which amounts to some Rp 58 trillion on its balance sheet.<\/p>\n
The cash-strapped government must set aside some Rp 7 trillion
\na year on BCA to serve the interest rates on its bonds.<\/p>\n
But Darmin ruled out question of withdrawing government bonds
\nfrom BCA if the bank were to become a foreign bank.<\/p>\n
\"We must be consistent; raising this issue would set us back
\nto the year 2000 when we first debated over the divestment of
\nBCA,\" he said.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/decision-on-bca-status-to-come-after-deal-closing-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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