IBRA starts asset bond swap

The Jakarta Post, Jakarta

Banks may soon start exchanging their recapitalization bonds with assets from the Indonesian Bank Restructuring Agency's (IBRA's) bond payments from the state budget.

"Basically this is a sale program of IBRA's core assets, in which payment can be made partially or entirely in recapitalization bonds," IBRA spokesman Suryo Susilo said in a statement on Wednesday.

What constitutes core assets is both unrestructured and restructured loans under IBRA from banks that were taken over.

Not included under core assets are loans extended to any of IBRA's top 50 debtors who, in total, owe debts of more than Rp 750 billion (about US$74.11 million)

Exemptions from this include assets from any of the top 50 debtors with debts of less than Rp 250 billion, and those who have completed their debt restructuring talks but do not belong to IBRAs' top 21 debtors.

Trading loans with recapitalization bonds will help IBRA redeem the costly bonds and at the same get the loans back to the private sector.

IBRA has amassed some Rp 600 trillion in assets taken over during the crisis.

About one-third of the assets are in unrestructured loans, or loans that had gone bad because companies stopped interest payments on them.

When the crisis struck, IBRA took over these loans from an ailing banking sector and replaced them with recapitalization bonds.

On such bonds, which carry zero risk, banks were able to earn interest payments again.

But the trade-off was that the government, using public money, had to shoulder the bonds' interest payments.

In total, the government has spent about Rp 630 trillion in recapitalization bonds to bail out the banking sector.

Interest payments on these bonds weigh heavy on the state budget, and redeeming part of them would help lift some of that burden.