Bank Mutiara sale needs to go ahead

JAKARTA. The sale of Bank Mutiara, formerly known as Bank Century, must go ahead as planned despite accusations that it will result in state losses, experts say.

Former Bank Indonesia (BI) governor Darmin Nasution said the sale process should proceed as mandated by the 2004 Insurance Deposit Agency (LPS) Law, although the state may lose money as the bank would be sold for less than its bailout figure of Rp 6.7 trillion (US$580.84 million).

“The law clearly says that the LPS must sell any bank that has been rescued in the sixth year at its best price, regardless of its bailout price,” he said during an LPS seminar on bank resolution on Tuesday.

However, he added that the LPS had to create a separate set of technical regulations as legal derivatives to prevent a possible public outcry.

In agreement with Darmin, former finance minister Bambang Sudibyo said the LPS should complete the Bank Mutiara divestment process as scheduled, without considering the political debates or allegedly criminal aspects of the bailout.

“True, it is hard to predict the political implication of the sale, but the bickering and criminal proceedings will still continue after the bank is sold. I’m worried that the LPS may be held liable if Mutiara’s sale does not go ahead as required by law,” he said during the same seminar.

Outgoing LPS executive chairman Mirza Adityaswara, who was recently elected BI’s senior deputy governor, said separately that the LPS was currently preparing mechanisms for next year’s sale.

The LPS rescued Bank Mutiara in 2008 through a controversial, legally complex bailout, which saw the agency spend Rp 6.7 trillion. Currently, the deposit agency holds a 99.9 percent stake in the bank.

The LPS Law stipulates that all shares of any bank it rescues must be sold at their purchase price within three years of the rescue, although the sale may be extended by a maximum of two times, with each extension lasting for one year.

But the LPS had failed to find any suitable buyer as of August, forcing it to put the bank up for auction next year. Bank Mutiara’s high bailout price has often been blamed as the main reason behind the failure.

With the Rp 6.7 trillion price, the bank’s price-to-book value (PBV) ratio — which is used to determine a bank’s market value to its book value — is set at more than five times’ higher than other banks’ PBVs, which range between two and three.

Besides the sky-high price, the current legal cases surrounding the bailout are also believed to have deterred potential investors. Investigations to determine whether or not the bailout was the result of malfeasance are ongoing at the Corruption Eradication Commission (KPK).

Darmin acknowledged that the 2008-2009 global crisis, which saw the closure of Bank Century, had highlighted the nation’s need for a financial system safety net (JPSK) law for authorities to take action in the event of another financial crisis erupting. He dismissed lawmakers’ concerns that a JPSK law would offer immunity to policy makers. (Tassia Sipahutar)