BNI to subscribe to Rp 6.1t worth of staple bonds

JAKARTA (JP): Publicly listed state-owned Bank Negara Indonesia (BNI) said on Thursday that it planned to exchange bonds worth Rp 6.18 trillion (US$657 million at the current exchange rate) with higher rate staple bonds from the government in a bid to increase its liquidity.

BNI president Saifuddien Hasan said the amount represented 10 percent of the Rp 61.8 trillion in government bonds the bank received for its recapitalization program.

"We have anticipated the possibility of the government issuing this policy and have already identified the bonds we intend to exchange," Saifuddien told reporters before attending BNI's public expose at his office.

He said the bank wanted to trade a portion of its fixed rate bonds for the staple bonds.

The government decided to offer recapitalized banks a chance to trade their recapitalization bonds with new ones carrying higher coupon rates.

The decision came after the banks' recapitalization bonds failed to attract investors in the secondary bond market, thus causing the banks difficulties in raising cash.

"The consideration here is that we want to be flexible in case we need liquidity. We plan to sell the new bonds in the market," Saifuddien explained.

He said he refrained from exchanging more than 10 percent of the bank's current bonds because the government's offer also required the bank to accept lower coupon rate staple bonds in return.

Current recapitalization bonds bear rates of only 12 percent, as against the 16 percent rates offered by the staple bonds.

However, banks can only exchange 30 percent of their outstanding recapitalization bonds for the higher coupon rate staple bonds.

The remaining 70 percent must be swapped for staple bonds carrying a lower interest rate of about 10 percent.

This policy is expected to prevent a surge in bond interest payments by the government.

"The government wants to maintain its fiscal costs," Saifuddien explained. "But the consequence is that our revenue will drop," he added.

He was referring to the other 70 percent of the bank's bonds that will carry lower interest rates, thus generating less revenue.

He said the benefit of subscribing to the staple bonds would depend on the "trade off" between the return from the lower coupon rate staple bonds and the liquidity from the sale of the higher coupon rate staple bonds.

"Certainly, if BNI could benefit from the rise in liquidity to generate more income, than it (the exchange) would still be profitable," he added.

Like BNI, other recapitalized banks received only government bonds to shore up sufficient productive assets for the recapitalization program.

At first, the government expected the banks to sell the bonds in the secondary market. But with interest rates of only 12 percent compared to the 14 percent offered by Bank Indonesia SBI promissory notes, banks found few takers.

During the public expose, BNI announced a loss of Rp 1.07 trillion during the third quarter of this year, as against a loss of Rp 4.6 trillion for the same period last year.

The bank said that interest income remained in negative territory at minus Rp 223 billion as the amount of interest payments were still higher than interest income.

This was partly due to a surge in total operating costs to Rp 2.89 trillion as of September 30 from Rp 1.96 trillion in the same period last year.

BNI said that the income earned from the interest on its recapitalization bonds did not yet cover the interest costs of third party savings during that period.

"Whereas the 95.9 percent surge in operating costs was mainly caused by foreign exchange losses of Rp 691.4 billion," the bank said.

For next year, BNI has targeted a net profit of Rp 1.4 trillion, Saifuddien continued.

He also expressed confidence that the banking sector was reviving, albeit slowly. (bkm)