Govt to complete bonds swap policy in March
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.