Don't put high hopes in new BCA owner: Experts
Dadan Wijaksana, The Jakarta Post, Jakarta
Hopes are riding high that the completion of the Bank Central Asia (BCA) sell-off will provide a boost for the recovery of the country's still-ailing banking sector, although analysts say there could still be a long road to travel before such hopes become reality.
The government last week named the Farallon-led consortium as the winning bidder for the government's 51 percent stake in BCA, the country's largest retail bank.
Farallon, a U.S. investment firm, beat another consortium led by Britain's Standard Chartered Bank Plc., which was initially tipped to win the bid because of its strong banking expertise and international reputation.
Selling BCA to a credible foreign investor would not only provide money for the cash-strapped government, but could also be expected to help turn the bank around so that it could become a locomotive for the revival of the local banking industry, saddled as it is with huge quantities of government bonds and the inability to resume lending to the real sector.
However, Indef (Institute for Development of Economics and Finance) banking analyst Drajat Wibowo poured cold water on the optimism, arguing that the top priority for Farallon as an investment company would be to seek capital gain from its investment in BCA, not to boost the bank's role in revitalizing the banking industry.
The government took over BCA from its founding owner, the Salim Group, in the wake of the 1997 regional financial crisis, and issued billions of dollars in bonds to help the bank stay afloat. The state budget now has to cover the interest on these bonds, amounting to between Rp 6 and 7 trillion (about US$700 million) each year in the case of BCA alone.
Drajat also said that based on Farallon's business plan for BCA, the investment firm had no clear strategy on how to unload the massive amount of government bonds held by the bank so as to enable it to increase loans to the business sector.
The bank's loan-to-deposit ratio last year was only about 17.5 percent, meaning that its income still depended largely on the interest on the government bonds, not on normal lending operations.
State Minister for National Development Planning Kwik Gian Gie had opposed the BCA sale program, arguing that it was not logical to continue paying taxpayers money to a bank owned by a foreign investor.
University of Gadjah Mada (UGM) economist Sri Adiningsih also has her doubts.
"What's hoped for from the new BCA (foreign) owner is that it will improve the performance of the bank, make it more efficient and gradually turn it into a world-class bank.
"But, that's only hope. It still needs to be proved whether Farallon can perform as expected," Sri said.
She said that being an investment company, it was unlikely that Farallon would have a long-term commitment to BCA.
Elsewhere, Drajat said that the appointment of Deutsche Bank AG as a technical adviser to the Farallon-led consortium was merely meant to strengthen the position of the investment firm in its BCA bid because of Deutsche Bank's close relationship with the International Monetary Fund, which is providing a multibillion dollar bailout facility for the country.
"I think the appointment of Farallon as the winner had something to do with the strong lobbying of Deutsche Bank with the IMF. And as the Paris Club (meeting) is nearing, in which the IMF's support is very important, Indonesia decided to choose Farallon instead of StanChart."
Former IMF Asia Pacific deputy director Hubert Neiss, who led the IMF team in Indonesia in the early period of the crisis, is the chairman of the Deutsche Bank's Asia operation.
BCA is potentially a good bank with more than 8 million accounts, 800 branches, over 2,100 ATMs and total assets of almost Rp 100 trillion as of last year.
Farallon business plan for BCA - No major changes in terms of policies - No layoffs for the next two years - Deutsche Bank to be hired to manage BCA - Increasing BCA's corporate, commercial loans to Rp 21 trillion from estimated Rp 15.6 trillion this year - Increasing retail loans to Rp 10.5t in 2005 from Rp 4.6t this year - Increasing pre-tax profit to Rp 5.4t in 2005 from Rp 3.2t this year