Banker supports plan on bond swap

JAKARTA (JP): The government's plan to allow banks to swap part of their fixed-rate recapitalization bonds with new bonds carrying a higher coupon rate is an effective way of helping recapitalized banks that are still facing liquidity shortages, according to a banker.

Treasurer and international director of Bank Central Asia (BCA) Fero Poerbonegoro said on Tuesday that bonds with a higher coupon rate would be more attractive to investors, making it easier for banks to raise cash to improve their liquidity condition.

"With a shorter maturity and higher interest rate, the bonds will sell well in the market," Fero said.

He said that many banks would subscribe to the new bond swap plan.

Fero said that BCA, the nation's largest private bank to be nationalized by the government, did not, however, suffer any liquidity problems.

The balance sheets of most recapitalized banks are still dominated by government bonds. This is not a healthy condition because this means that the main source of the banks' revenues is interest from the bonds, rather than normal lending activity.

What makes things even worse is that banks have so far found it extremely difficult to sell the government bonds to the market to get cash for their lending activities due to the undeveloped secondary market.

Instead of injecting cash, the government issued bonds to help finance the recapitalization program of the country's ailing banks.

The government has so far issued more than Rp 400 trillion worth of bank recapitalization bonds consisting of about Rp 150 trillion worth of fixed-rate bonds with maturity between five and 10 years and carrying a coupon rate of 12 percent and 14 percent, and Rp 250 trillion worth of variable rate bonds with maturity of up to 15 years. The rate is linked to the interest rate of Bank Indonesia's one-month SBI promissory notes. The rest are indexed rate bonds.

Until the end of August, only around Rp 9.3 billion worth of bank recapitalization bonds had been bought by investors in the secondary market.

Bankers have said that the market is demanding a huge discount for the bonds.

Director general of financial institutions of the finance ministry Darmin Nasution said on Monday that the government would soon allow banks to swap up to half of their fixed-rate bonds with new government bonds carrying a higher coupon rate.

He said that the government was still making the necessary calculations but the rate of the new bonds would be even higher than the rate of the one-month SBI notes currently hovering at around 13.7 percent.

He said that the new plan would be realized some time near the end of next month.

He was also confident that the recapitalized banks would welcome the new policy.

But Darmin said that the new facility would only be eligible to recapitalized banks suffering a liquidity shortage.

Darmin also said that the higher interest rate would not increase the state budget because banks joining the new bond swap measure would also have to agree to lower the coupon rate of the remaining half of the bonds which were not being converted.

The state budget covers the interest rate of the government bank restructuring bonds. The interest rate cost of the government bonds in the 2001 state budget is estimated at more than Rp 55 trillion. Combined with the cost of servicing government foreign debt, the interest rate cost would amount to more than Rp 77 trillion or around 41 percent of government's routine expenditures.(rei)