Jakarta Rescues Troubled Bank Century

Source: Financial Times (20-11-2008)

By John Aglionby in Jakarta 

Indonesia's state-owned deposit guarantee agency took over Bank Century, marking the first such collapse in Indonesia since the Asian financial crisis of a decade ago.

Boediono, the Bank Indonesia governor, said the decision to take over the publicly-listed Bank Century, which has assets of about $1.2bn and is the 13th largest by market value, was to "make it better and more professional" until a buyer could be found. "There are interested investors but the government and Bank Indonesia saw that people needed immediate certainty so [we decided] the best way out was to take it over".

The move prompted bankers to predict that the industry was likely to witness further failures and consolidation among the scores of small lenders as the impact of the global financial crisis deepens.
However, they agreed with Mr Boediono that the sector is not facing a systemic crisis having undergone reform and recapitalisation following the Asian financial crisis a decade ago.

There are 126 banks in Indonesia, according to the central bank, but the largest 20 and those in foreign hands control more than 90 per cent of the market.

The terms of the takeover were not disclosed. But the move prompted the Sinar Mas group, which earlier this week expressed an interest in acquiring a controlling stake in the bank, to withdraw its offer.

One senior Jakarta-based banker said he considered it "unlikely" that this would be an isolated failure. "With 130-odd banks in the system, one must assume that further challenges of this nature and consolidation will take place," he said.

Many bankers are wary about commenting on the record after a member of the sales team at Bahana Securities was detained on Saturday for spreading rumours that five banks were facing liquidity shortages.

Another banker said almost three dozen small but sound banks could become takeover targets if the pressure on them intensifies, while "quite a number" of tiny banks established by provincially based entrepreneurs could suffer a similar fate to Bank Century.

The second banker said: "If people ask for four times book value I don't think they'll get very far, but if the range is one to two times, I think we'll see a lot of consolidation activity."

Indonesian banks are facing a liquidity squeeze as businesses struggle to repay dollar-denominated debts, locals seek refuge in foreign currencies and sentiment continues to shun emerging markets.

The announcement on Friday put further pressure on the rupiah, which fell 5.6 per cent to 13,100 to the dollar before recovering to 12,600. The currency has weakened 44 per cent since early August. One-month non-deliverable forwards, a form of currency futures trading, were at 14,400 to the dollar.

On the weakening rupiah, Mr Boediono said the central bank would seek to keep the exchange rate at a "realistic level" and would remain active in the market.

Additional reporting by Taufan Hidayat in Jakarta
Copyright The Financial Times Limited 2008