Bapepam to allow sale of asset-backed securities soon

By Devi M. Asmarani

KUALA LUMPUR (JP): Indonesia's Capital Market Supervisory Agency (Bapepam) will soon issue a new regulation to allow the sale of asset-based securities in the domestic capital market.

Bapepam chairman I Putu Gede Ary Suta said yesterday that the new regulation would allow the establishment of a "special purpose vehicle" to trade the asset-backed securities.

"The securitization of financial assets will improve the transparency of the financial market and transfer liquidity risk from intermediaries to investors," he told a business conference.

The special purpose vehicle, which would function as an investment manager, could trade securities backed by bank loans and other corporate assets to investors, he said.

Until now, such a vehicle has not existed in Indonesia. Many banks and other financial firms had secured their assets through foreign companies, he said.

Ary Suta said in western countries, such as the United States, there had been a remarkable shift from traditional financial institutions such as banks and finance companies toward investment vehicles such as money market funds and asset-backed securities.

In the Southeast Asian region, under traditional financing -- with liquidity risks being borne by the intermediary instead of by the investor -- banks and finance companies were allowed to operate with less transparency.

Ary Suta said the lack of transparency caused banks and finance companies to be more readily able to lend to affiliated enterprises and to conceal bad loans, he said.

"In the region, the lack of transparency in traditional financial sectors has contributed to the current turmoil and has increased uncertainty to the extent of crisis and lack of confidence in the region," he told the Association of Southeast Asian Nations (ASEAN) Business Forum.

Speaking about the Indonesian stock market, Ary Suta said Indonesia's sluggish stock exchange now was waiting an injection from state-owned firms and their pension funds.

He said that the minister of finance had formally ordered state-owned companies to use 1 percent of their profit to buy shares through the local stock market.

In addition, the minister of finance had also instructed state-related pension funds to boost their portfolio investment, he said.

"If these two orders are optimalized, the stock market would get a huge injection," Ary Suta said.

He said Indonesia's stock market had yet to benefit from the pension funds.

The investment of Indonesian pension funds in the capital market has been very small, compared to those made by pension funds in other Asian countries.

Much of Indonesia's pension funds accumulate their investment in time deposits in banks for security reasons, he said.

However, with uncertainty in the banking sector, investing in banks has also become risky now, he said.

He said pension funds could spread the risk by investing in the stock market.