Don't put high hopes in new BCA owner: Experts

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