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.