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)