Bank Niaga's sale
A further delay, let alone a cancellation once again, in the sale of nationalized Bank Niaga, could do irreparable damage to the image of the midsized bank and eventually destroy the public's trust in its credibility.
The House of Representatives should be commended for its great concern to recoup as much as possible of the Rp 9.4 trillion (US$1.04 billion) in taxpayers' money already invested in the bank.
However, as it now seems futile for the Indonesian Bank Restructuring Agency (IBRA) to bargain for a higher bid price from Commerce Asset Holdings Bhd for the 51 percent equity stake in the bank, there is no other choice but to finalize the process of closing the deal with the Malaysian finance company.
IBRA is now racing against time in completing the overall restructuring of all the country's largest banks that it now controls under the government-funded massive recapitalization program in 1999 and 2000.
Unless these banks are released to private investors who are able to bring in fresh money, better management and, most important, higher credibility, these banks could be doomed to failure when the government begins phasing out its blanket guarantee on bank deposits and claims in January.
The Rp 26.5 per share bid-price (1.45 times Bank Niaga's book value) submitted by Commerce, as the only bidder taking part in the second tender, is indeed far below what the government and the House expected. But that is close to the highest price offered by the two final bidders taking part in the first tender in June which was aborted by the government due to what it considered was an unacceptably low bid.
The final bid price is not what some critics have rejected as a fire-sale price as it was formed through an open, competitive bid. It is simply the price the market is willing to accept.
Certainly, the price should be assessed against the condition of Bank Niaga, whose capital consists almost entirely of illiquid government bonds bearing a coupon rate of 12.5 percent.
Moreover, investing in such a bank as Bank Niaga, which does not possess a strong franchise in a particular market niche, not only exacts a long gestation period but also is highly risky, especially under the still fragile economic conditions at present.
It is precisely because of the fragile economy, in addition to the fierce competition within the banking industry as most domestic and foreign banks now compete in the retail market, that Bank Niaga desperately needs a new controlling owner, a strategic investor with a good track record in management and massive financial resources to bolster its market competitiveness.
Without new strategic investors of high credibility, Bank Niaga, which is now being kept afloat mainly by the government's blanket guarantee on bank deposits and claims, might lose the public's trust after the guarantee scheme is phased out beginning in January.
In fact, the longer the bank is under the management of IBRA, which has of late increasingly been perceived as a "den of thieves", the worse would be its condition. The hard truth is that the government, which now owns 97 percent of Bank Niaga, simply does not have adequate resources nor credibility to bring the weak bank up on to a stronger footing.
It is therefore misguided to assess the strategic sale of the bank simply from its price. Of more importance is the synergy, credibility and better management that will be brought in by the new majority owners.
A strategic investor with a good reputation will be able to jump start Bank Niaga's operational restructuring and create a virtuous cycle within the bank and Commerce Asset seems to fit the bill.
The central bank has yet to conduct a fit-and-proper test on Commerce Asset as the only candidate for a new controlling owner of Bank Niaga. But this Malaysian finance company seems to be fully committed to the long-term development of the bank, at least seen from the fact that it was also one of the final two bidders selected in the first tender and is the only bidder willing to take part in the second tender.
A stronger Bank Niaga not only will increase its share value and create greater capital gains for the government's remaining 46 percent stake in the bank but also will benefit the banking industry and the economy as a whole. One or two years down the road, the government can sell its remaining equity at a much higher value and recoup a greater portion of its investment in the bank.