Bank Mandiri may take 10 years to dispose off recap bonds
Bank Mandiri may take 10 years to dispose off recap bonds
The Jakarta Post, Jakarta
State owned Bank Mandiri said it could release at best Rp 15
trillion (about US$1.5 billion) in recapitalization bonds a year,
a pace that would take the bank over 10 years to cut its
dependency on revenue from the government funded bonds.
Bank Mandiri president E.C.W Neloe said that massive, or fast
disposals, of its Rp 153.49 trillion in recapitalization bonds
were unlikely.
"On the average we may be able to dispose off Rp 15 trillion a
year, so that we will need some 10 years to complete it (bond
disposal)," Neloe told a media briefing late Tuesday.
Bank Mandiri is the country's largest bank in terms of assets,
as well as the largest recipient of recapitalization bonds.
Income from government bonds have been the lifeline for most
banks following their recapitalization in the wake of the 1997
financial crisis.
The bonds were aimed at keeping the banks afloat after the
government took over their bad loans, which earned the banks no
interest income.
The bonds issued to bail out the banking sector amounted to Rp
630 trillion, excluding interest payments.
They have become a constant drain on the state budget.
Last year Rp 61 trillion was spent on bond interest payments
to banks, with about one third going to Bank Mandiri.
This year the payments may hit Rp 59 trillion, or nearly 40
percent of total government spending.
That tops spending on development worth Rp 52 trillion, which
covers, among other things, health, welfare and education
expenditure, besides being the only spending that could drive
economic growth.
But as the economy continues to sputter, the banks have been
slow to replace the bonds with higher earning loans.
Bank Mandiri's 2001 interest income from recapitalization
bonds stood at Rp 23.14 trillion -- three times the earnings the
bank made from interest on loans and other sources.
Its interest income from government bonds in 2001 fell only
slightly to 73.5 percent from 75.3 percent in 2000.
Neloe said finding attractive investments to replace the bonds
was hard given the need to abide by prudential lending
principles.
Most economic sectors remain in the doldrums five years after
the economic crisis struck, forcing banks to invest their funds
in the previously ignored small and medium enterprises, or Bank
Indonesia promissory notes.
Otherwise, the banks are reliant on income from government
bonds.
Bank Mandiri's chief financial officer K. Keat Lee said the
bank would retain Rp 114 trillion in bonds until their maturity
dates, meaning they would not be offered for sale this year.
This, he said, would avoid the bonds' fall subject to market
valuation, which might lower their value and hence hurt the
bank's asset position.
Bank Mandiri is offering the bond market Rp 8 trillion of its
bonds, with another Rp 31.17 trillion kept on standby offer.
Last year the bank sold around Rp 15 trillion of its bonds.
The Jakarta Post, Jakarta
State owned Bank Mandiri said it could release at best Rp 15
trillion (about US$1.5 billion) in recapitalization bonds a year,
a pace that would take the bank over 10 years to cut its
dependency on revenue from the government funded bonds.
Bank Mandiri president E.C.W Neloe said that massive, or fast
disposals, of its Rp 153.49 trillion in recapitalization bonds
were unlikely.
"On the average we may be able to dispose off Rp 15 trillion a
year, so that we will need some 10 years to complete it (bond
disposal)," Neloe told a media briefing late Tuesday.
Bank Mandiri is the country's largest bank in terms of assets,
as well as the largest recipient of recapitalization bonds.
Income from government bonds have been the lifeline for most
banks following their recapitalization in the wake of the 1997
financial crisis.
The bonds were aimed at keeping the banks afloat after the
government took over their bad loans, which earned the banks no
interest income.
The bonds issued to bail out the banking sector amounted to Rp
630 trillion, excluding interest payments.
They have become a constant drain on the state budget.
Last year Rp 61 trillion was spent on bond interest payments
to banks, with about one third going to Bank Mandiri.
This year the payments may hit Rp 59 trillion, or nearly 40
percent of total government spending.
That tops spending on development worth Rp 52 trillion, which
covers, among other things, health, welfare and education
expenditure, besides being the only spending that could drive
economic growth.
But as the economy continues to sputter, the banks have been
slow to replace the bonds with higher earning loans.
Bank Mandiri's 2001 interest income from recapitalization
bonds stood at Rp 23.14 trillion -- three times the earnings the
bank made from interest on loans and other sources.
Its interest income from government bonds in 2001 fell only
slightly to 73.5 percent from 75.3 percent in 2000.
Neloe said finding attractive investments to replace the bonds
was hard given the need to abide by prudential lending
principles.
Most economic sectors remain in the doldrums five years after
the economic crisis struck, forcing banks to invest their funds
in the previously ignored small and medium enterprises, or Bank
Indonesia promissory notes.
Otherwise, the banks are reliant on income from government
bonds.
Bank Mandiri's chief financial officer K. Keat Lee said the
bank would retain Rp 114 trillion in bonds until their maturity
dates, meaning they would not be offered for sale this year.
This, he said, would avoid the bonds' fall subject to market
valuation, which might lower their value and hence hurt the
bank's asset position.
Bank Mandiri is offering the bond market Rp 8 trillion of its
bonds, with another Rp 31.17 trillion kept on standby offer.
Last year the bank sold around Rp 15 trillion of its bonds.