Bond issuance by banks criticized

Bond issuance by banks criticized

Dadan Wijaksana, The Jakarta Post, Jakarta

The government appealed to publicly-listed banks not to rush
in issuing bonds to avoid panic in the market when the government
decides in the future to revise the existing blanket guarantee
scheme to no longer cover bonds.

Director General of Financial Institutions of the Ministry of
Finance Darmin Nasution said on Wednesday he had talked with the
Capital Market Supervisory Agency (Bapepam) to make sure that
banks would inform the public about the risk in investing in
bonds.

He said that Bapepam would latter decide on what kind of
sanction to be imposed against banks which fail to provide the
necessary information.

Under the blanket guarantee scheme, introduced in 1998
following the banking crisis, all obligations of a closed down
banks (including to bond holders) will be covered by the
government.

But there is plan now to gradually end the blanket guarantee
program to minimize the burden of the government.

Banks have been rushing to issue bonds to raise cheap funds
amid declining interest rate environment. Bonds on the other
hand are seen as an alternative investment for investors as the
lower time deposit rate is no longer attractive.

"What if something happens in the future when, let's say, the
scheme does no longer exist for such bonds?," Darmin said.

"If everything's normal, there will be no problems. But, the
current scheme could change, meaning that the bonds might no
longer be guaranteed.

"Banks must inform that, so their investors become well-aware
of such a fact," Darmin told reporters.

The phasing out of the blanket guarantee program was initially
planned to be completed sometimes in 2004 or 2005, when the
banks' third party funds above Rp 200 million will no longer be
covered by the government. But, the government currently put the
plan on hold.