Government issues higher coupon rate bonds

Government issues higher coupon rate bonds

JAKARTA (JP): The government announced on Wednesday that it
would issue new bonds carrying a higher coupon rate that could be
exchanged with some of the lower interest rate bonds held by the
recapitalized banks.

Director General of Financial Institutions Darmin Nasution
said that the new policy was aimed at making the recapitalization
bonds more attractive to investors.

"The banks will be given until (next) Thursday to decide
whether they will subscribe to the new bonds," Darmin told
reporters during a break in a meeting with the joint government-
legislature state budget committee.

He said that only the recapitalization bonds carrying a fixed
interest rate of 12 percent and maturity period of five years
could be exchanged with the new bonds carrying an interest rate
of 16 percent and 10 percent.

He said that under the new plan, the banks would be allowed to
exchange 30 percent of the outstanding recapitalization bonds
with the higher interest rate bonds, and the remainder with the
lower rate bonds.

Darmin said that the combination of higher and lower interest
rate bonds would not increase the government's bond interest
payment in 2001, which is estimated to reach Rp 55.6 trillion.

The government has completed the bank recapitalization program
by injecting bonds into recapitalized banks rather than injecting
fresh capital. The government has issued about Rp 450 trillion in
bonds carrying a combination of fixed and variable interest
rates.

The balance sheet of most of the recapitalized banks are
currently burdened with government bonds instead of productive
loan assets.

The government initially expected the recapitalized banks
could sell the bonds on the secondary market to raise cash to
finance lending activity, but it turned out that not many
investors were interested in purchasing the bonds except at a
discount.

One reason was due to the fact that the interest rate of the
fixed rate bonds was lower than the interest rate of the Bank
Indonesia SBI promissory notes currently hovering above 14
percent.

Up to the end of August, sales in the secondary government
bond market was only about Rp 9.3 billion.

Danamon

Separately, Bank Danamon president Arwin Rasyid said on
Wednesday that the bank welcomes the new government policy which
would make it easier to sell the bonds, raise cash and resume
their intermediary function.

"We welcome the new policy," he told a press conference
introducing the bank's new management team appointed at the
recent shareholders meeting.

He said that the bank was still awaiting the details of the
new policy.

Elsewhere, Arwin said that publicly-listed Danamon booked a
third quarter net profit of Rp 160 billion compared to Rp 13
billion in June on the back of a significant increase in net
interest margins.

He said that full year net profit was expected to reach more
than Rp 250 billion.

Bank Danamon, which was nationalized by the government in
1998, holds around Rp 47 trillion worth of government bank
recapitalization bonds. The bank was merged with eight other
smaller banks in June.

Arwin said that interest income as of September was Rp 3.1
trillion largely received from government bank recapitalization
bonds.

He said that the bank's new lending in the third quarter was
only Rp 1.3 trillion, increasing the total lending portfolio to
Rp 5.7 trillion.

Arwin said that the level of non-performing loans (NPL) as of
September was 19 percent, down from 26 percent in June. He said
that the average NPL level of the recapitalized banks was 20.7
percent.

He said that the bank's net open position in September was
45.1 percent but it had now dropped below the 20 percent limit
set by Bank Indonesia.

He said that the bank's capital adequacy ratio (CAR) was at
37.1 percent at the end of September compared to the average CAR
level of the recapitalized banks of 10.1 percent.

The bank's new management team includes old and new faces.
The new faces are Krishna Suparto, a former executive from the
now defunct Bank Putera, in charge of corporate loans, and Gatot
Suwondo from Bank Duta in charge of the commercial and remedial
division. The old faces are Armand Arief in charge of consumer
banking, Safrullah Saleh as finance director, Ria Sidabutar as
compliance director, and Muliadi Rahardja in charge of technology
and IT.(rei)