Govt to complete bonds swap policy in March
Dadan Wijaksana, The Jakarta Post, Jakarta
The government expects to finalize in March a policy that will allow fixed-rate bonds in four banks to be replaced with bonds carrying a variable interest rate, according to director general of financial institutions Darmin Nasution.
Darmin said on Monday that some Rp 58.6 trillion (US$5.7 billion) worth of fixed-rate bonds will be replaced by variable- rate bonds.
He said that the government will officially seek the approval of the House of Representatives in two weeks.
"If they (the House) agree, then it (the conversion) in the four banks should be finalized by March," Darmin told reporters on Monday, after a hearing with House Commission IX on financial affairs.
The four banks are Bank Niaga, Bank Rakyat Indonesia (BRI), Bank Bali and Bank Tabungan Negara (BTN).
The government recapitalized these banks in the wake of the 1998 financial crisis by injecting fixed-rate bonds. The bonds carry a fixed rate of 12 percent.
In comparison, the interest rate on Bank Indonesia SBI promissory notes have been hovering at around 17 percent for many months.
The government recapitalized other group of banks mostly with bonds carrying variable rate attached to the SBI rate.
Some bankers have urged the government to replace the fixed rate bonds with variable rate bonds, as their banks have been suffering from negative spread due to the huge rate differential.
Darmin said the government had set aside more than Rp 500 billion to cover the additional burden resulting from the bond conversion policy.
The state budget covers the interest rate of the bank recapitalization bonds.
The government has repeatedly said that the move is crucial to help local banks, which have been relying heavily on interest payments by the government as their income, improve their financial performance.
The country's banking sector would, therefore, have better chances of luring investors.
The rate conversion plans have come at a time when the Indonesian Bank Restructuring Agency (IBRA) is sending out bidding invitations to potential investors in Bank Niaga's sale process.
IBRA has launched the sale of a 51 percent stake in Bank Niaga through a private placement process it hopes to finalize by June.
Bank Niaga earns a flat 12 percent interest rate from some Rp 9.5 trillion worth of government bonds, against more than 16 percent it would earn if they were traded for variable rate bonds.
If the government is to finalize the swap by March, the timing could not be better, as it is the same time the agency is hoping to receive a response from potential bidders.
Aside from Bank Central Asia (BCA), the success of Bank Niaga in bringing in credible investors would be important to revive confidence in the banking sector, which has been widely blamed for the slow economic recovery.