IBRA cedes control of Bank Bali

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) ceded management control of Bank Bali to Standard Chartered Bank as an inducement for the UK bank to take a 20 percent stake, an IBRA advisor said on Tuesday.

Adriansyah Chaniago said that Standard Chartered Bank was doubtful about entering Bank Bali after the latest due diligence showed the latter institution needed about Rp 4.3 trillion, compared to the initial estimate of Rp 2.8 trillion in December, to lift its capital adequacy ratio (CAR) to the minimum 4 percent level.

"We had to give the incentive... so that Standard Chartered would no longer be doubtful," he told a news gathering.

Standard Chartered is the first foreign bank to control the management of a local bank. The precedent is expected to lure other overseas banks to enter local institutions, which are in dire need of foreign capital due to huge problems.

The entry of foreign banks also will help minimize government spending on the bank restructuring and recapitalization program which is estimated to cost about Rp 550 trillion, roughly 50 percent of the country's gross domestic product.

IBRA announced on Monday it would let Standard Chartered Bank head Bank Bali's new management team.

Standard Chartered appointed its Southeast Asia head for corporate and institutional banking Douglass Beckett to lead Bank Bali. He will be assisted by several local senior officials of Bank Bali.

IBRA said the management reshuffle was part of an investment agreement in which Standard Chartered would buy a 20 percent stake in Bank Bali through a rights issue process.

The agency said that it would be the standby purchaser of the remaining unsubscribed issue.

Bank Bali is scheduled to offer a rights issue in October to raise about Rp 4.3 trillion for its recapitalization program.

Adriansyah said that if Standard Chartered purchased the rights issue amounting to a 20 percent stake, it would be given the option to own up to a 100 percent share in Bank Bali in five years' time.

But he warned it might be forced to cede management control if it failed to buy the minimum 20 percent stake.

The government earlier sponsored the recapitalization program of seven private banks and four nationalized banks. Bank Bali was supposed to join the first group in the recapitalization program, but its involvement was delayed after Standard Chartered said in April it was interested in buying a 20 percent stake.

The delay was permitted to allow the foreign bank to audit Bank Bali's financial condition.

Adriansyah said IBRA had to take over Bank Bali from its founding owner, the Ramli family, on July 23 because Standard Chartered did not realize its plans by the deadline due to concern over the doubled recapitalization estimate.

Most banks in the country continued to suffer negative interest rate spreads between January and May amid a high interest rate environment, with their CAR deteriorating further.

Bank Indonesia Governor Sjahril Sabirin said on Tuesday that the move was part of efforts to speed up the recapitalization program of the banking sector, an essential factor for the country's economic recovery.

"The move was made to accelerate the recapitalization process," he said on the sidelines of a seminar.

Separately, Beckett promised on Tuesday that the new management team would not resort to layoffs, saying he was optimistic that Bank Bali would grow.

He told a news conference that Bank Bali would resume lending once the recapitalization program was completed.

Meanwhile, outgoing Bank Bali president Rudy Ramli said that his family did not have plans to take back control of the bank. (rei/cst)