Farallon wins Bank BCA<\/p>\n
By selecting Farallon Capital Management of the United States
\nas the winner of 51 percent of Bank Central Asia (BCA) over the
\nfavorite, Standard Chartered Bank of Britain, last week, the
\ngovernment decided to give higher priority to the credibility and
\nfairness of the transaction over the integrity, competence and
\nreputation of the investor.<\/p>\n
The decision is rational in view of forthcoming government
\ndivestment in several other major banks, such as Bank Niaga, Bank
\nDanamon and Bank Mandiri. Selecting Farallon as the final winner
\nwill quell criticisms over the preferential treatment allegedly
\ngiven to the British bank and improve the government's
\ncredibility in future bank tenders.<\/p>\n
But then the transaction is no longer a strategic sale in the
\nreal sense because the \"strategy\" component that was supposed to
\nbe brought in by the new investor's high integrity, competence
\nand reputation in the banking industry was missing. What the
\nbidding process produced was the Farallon-Djarum consortium, the
\nstrange coupling of an investment firm with a cigarette maker.<\/p>\n
The government actually had the right, and good reason, to
\nexpect Standard Chartered as the final winner because in contrast
\nto Farallon, the UK bank would have brought synergy and its high
\nintegrity, competence and reputation in the banking industry to
\nBCA.<\/p>\n
The dilemma, though, is that selecting Standard Chartered as
\nthe winner would have produced a deal that was perceived to be
\nunfair and not credible. That would have inflicted greater costs
\nin that potential investors would simply have stayed away from
\nany future asset sales by the government.<\/p>\n
Anyway, Farallon, as one of the two final bidders that
\nsuccessfully passed the fit-and-proper test by the central bank,
\nhas won the prize through a fair and credible process. True,
\nFarallon, as an investment company, will not have a long-term
\ninterest in the bank as its main objective is a high return on
\ninvestment and capital gain. It will divest as soon as high
\nprofits are on the horizon.<\/p>\n
But there is nothing wrong with this goal. Even Standard
\nChartered would also have aimed at that goal, though with a much
\nlonger time-horizon, because it would not have seen BCA simply in
\nterms of its operations in Indonesia but also within the
\nframework of its business and brand name in Asia, possibly, even
\nthe world.<\/p>\n
In fact, in view of BCA's great role in Indonesia's payments
\nsystem, those who believe that domestic ownership of key
\nindustries, such as banks, is a vital symbol of national
\nindependence and interest, may prefer Farallon as the majority
\nowner of BCA. They can rest assured that national interests can
\nlater take over the bank because the investment company will
\nsooner or later sell its shares.<\/p>\n
It is also encouraging to note, at least judging from the
\nbusiness plan Farallon submitted as required in the bidding, that
\nthe U.S. investment company will ask Deutsche Bank to help manage
\nBCA. Its plan to emphasize the development of effective risk
\nmanagement and to expand lending operations by at least 34
\npercent within three years, demonstrates its right perception of
\nsound bank operations.<\/p>\n
BCA, though the largest retail bank, with a customer base of
\nmore than eight million accounts, still depends mainly on the
\ninterest on its government bonds for its income, and its loan-to-
\ndeposit ratio is still very low, at around 17 percent. Only by
\nexpanding loans, but under effective risk management, will BCA be
\nable to build a stronger footing for long-term growth.<\/p>\n
BCA's main weakness is poor risk management and credit
\nassessment. Before its collapse in 1998, BCA was virtually the
\ntreasury unit of the Salim business group. Hence, its staff
\nmembers had not developed and acquired adequate skills in those
\ntwo core elements of banking operations. In this context,
\nFarallon is actually not the best choice.<\/p>\n
Farallon's success will depend on how far and how long it will
\ntap Deutsche Bank's resources for developing BCA human resources.
\nIts cooperation with an international bank with high integrity
\nand high competence is vital to improve public confidence in BCA,
\nwhich, like most other national banks, is still quite fragile.
\nThis is because the bulk of its capital comprises illiquid
\ngovernment bonds, and the adverse economic and political
\nsituation in the country still poses unusually high risks on
\nbanking operations.<\/p>\n
Yet, we are still worried until the detailed shareholding
\nstructure of the Farallon-Djarum consortium and the terms and
\nconditions of the sale and purchase contracts disclosed. The
\npublic especially wants to know the identity of the majority
\nowner of the 51 percent stake. This factor is quite vital
\nbecause, in contrast to other industries, a bank is a trust
\ninstitution, and a good bank starts with the integrity,
\nreputation and competence of its owners. This is especially true
\nin Indonesia, where good corporate governance has yet to be
\ndeveloped and the central bank's bank supervision capability is
\nlargely inadequate.<\/p>\n
The market would be nervous if the majority owner were the
\nDjarum group -- rumored to have bought 14 percent of BCA through
\nthe stock market -- as the public is still traumatized by the
\n1998 banking crisis, caused mostly by conglomerate-owned banks.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/farallon-wins-bank-bca-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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