House approves conversion of bonds in four banks
Dadan Wijaksana, The Jakarta Post, Jakarta
The House of Representatives finally approved on Monday the government proposal to convert some of the fixed-rate bonds in four banks into variable-rate bonds to avoid banks suffering yet more financial trouble.
Under the policy, 22.5 percent of bonds held by Bank Rakyat Indonesia (BRI) would be converted into bonds carrying variable interest rates linked to the benchmark rate of Bank Indonesia SBI promissory notes.
The conversion would also be applied to 95 percent of bonds retained by Bank Tabungan Negara (BTN), 40 percent of bonds in Bank Niaga and 50 percent of bonds in Bank Bali.
BRI and BTN are state-owned banks, while Bank Niaga and Bank Bali have been nationalized by the government.
The government injected the bonds in the late 1990s to finance the recapitalization of the banks.
Currently, BRI and BTN hold Rp 29 trillion (US$2.9 billion) and Rp 13.8 trillion worth of bonds, while Bank Niaga and Bank Bali obtained Rp 9.4 trillion and Rp 5.3 worth of bonds, respectively.
But most of the bonds carry a fixed interest rate of 12 percent.
Since Bank Indonesia's benchmark rate has been hovering at between 16 percent and 17 percent for the past year, the banks holding fixed-rate bonds had been suffering negative spread, which if continued could lead to more financial trouble.
Other banks recapitalized by the government received bonds carrying variable rates.
Amid the current economic difficulties and uncertainties, most banks have been reluctant to channel lending to the business sector and have relied on the interest of government bonds as a source of revenue.
"The House approves this conversion scheme because we can understand how important it is, as a way of consolidating our banking sector as a whole," Paskah Suzzetta said, during the final hearing session with the government.
Paskah also confirmed the move would cause an additional burden of some Rp 432 billion (US$43.2 million) to the state budget.
The state budget covers the interest rate of the bonds.
The government has said the conversion scheme was crucial to help the banks improve their financial performance.
Improvement in the country's banking sector could well result in larger credit expansion for the real sector, which will in turn accelerate economic growth.
The House approved replacing bonds held by BTN and BRI with variable rates, on the grounds that these banks have had a good track record in channeling most of their credit to the public.
In the case of Bank Bali, both the government and the House agreed that steps need to be taken to put the bank in better financial shape prior to its planned merger with four other small banks.
As for Bank Niaga, a conversion was seen as necessary, not only to improve its financial condition, but also to serve as sweeteners in its divestment process for investors.
Meanwhile, it was also revealed in the hearing that the government had allocated around Rp 3 trillion in cash to ensure a smooth process for the planned merger of five banks including Bank Bali, Bank Universal, Bank Artha Media, Bank Prima Express, Bank Patriot.
The fund is currently deposited at the central bank under account number 519.
Elsewhere, Chairman of the Indonesian Bank Restructuring Agency (IBRA) I Putu Gede Ary Suta said that the agency would seek the approval of the House this month for the planned sale of several banks this year including Bank Danamon, Bank Lippo, Bank Internasional Indonesia and the bank resulting from the above merger process.