Govt undecided over BCA status if foreign bid wins

Govt undecided over BCA status if foreign bid wins

Berni K. Moestafa and Alex Wilson, The Jakarta Post, Jakarta

The government has yet to decide whether to keep Bank Central
Asia's (BCA) deposit guarantee scheme intact if the bank is sold
to a foreign investor, sending bad signals to foreign investors
who have already placed their final bids for BCA.

BCA bidder British-based Standard Chartered Bank Plc
(StanChart) said on Tuesday the government was undecided over
BCA's status if StanChart were to gain control of the bank.

StanChart's chief executive for Indonesia, Ray Ferguson, said
the bank was waiting for Bank Indonesia and the Ministry of
Finance to decide on the issue.

"The government position on the deposit guarantee scheme is
not absolutely clear to me," Ferguson told reporters in a
meeting.

"There is a debate on whether or not the blanket guarantee
will continue."

Disagreement between the government and Bank Indonesia could
prove risky, as StanChart emerged as the strongest out of four
candidates for a 51 percent stake in what was once the largest
privately owned retail bank.

With its blanket guarantee scheme, the government, through
Bank Indonesia, covers saving deposits at banks hit by massive
runs.

The scheme was introduced in the wake of the 1997 financial
crisis, and applies only to local banks.

Local banks also received government bonds worth some Rp 430
trillion (US$43 billion) to replace bad loans from their balance
sheets.

BCA received some Rp 58 trillion worth of state bonds, for
which it surrendered loans of equal value to the Indonesian Bank
Restructuring Agency (IBRA).

But these loans were non-performing, from which IBRA earned no
interest. IBRA has been selling the bad loans at heavily
discounted prices, which has led to a poor recovery rate of the
state bonds.

Now, with some Rp 58 trillion worth of state bonds in BCA, the
government must fork out another Rp 7 trillion a year to pay the
coupon rates on its bonds, according to one banking analyst.

That compares to an estimated Rp 5 trillion in proceeds from
the government's planned sale of a 51 percent stake in BCA.

The high cost of maintaining BCA has been justified because
the state owns a majority share in BCA.

With about eight million saving accounts, BCA is also seen by
many as among the most strategic of local banks.

Some analysts are now questioning the validity of that status,
should a foreign investor take over BCA.

They argue that the bank could hardly retain its local status
and with it the state's full backing, if it were under foreign
control.

But turning BCA's status into a foreign bank, revoking the
government bonds and the blanket guarantee scheme, would risk
undermining public confidence in the bank.

This option would also require StanChart to seek new assets to
replace the Rp 58 trillion of government bonds.

So far, the scope of debate between the Ministry of Finance
and Bank Indonesia remains unclear.

Ferguson said he would prefer BCA retain its local status, but
would comply with whatever government regulators asked.

StanChart's consortium and another consortium led by U.S.
investment firm Farallon Capital are said to be leading the bids
for BCA.