D

espite persistent political noise over the alleged malfeasance in the November 2008 bailout of Bank Century (now renamed Bank Mutiara), the bank has made remarkable progress over the past two years, with its equity capital rising to Rp 1.4 trillion (US$140 million) from minus Rp 2.2 trillion and capital adequacy ratio exceeding 11 percent, an astronomical increase from minus 36 percent.

But the Deposit Insurance Corporation (LPS) that bailed out the bank at Rp 6.7 trillion has yet to find it buyers, even though the divestment deadline is less than two years away as the law allows the LPS to own a bank only for six years after acquisition at the most.

The problem is that the Deposit Insurance Law requires the LPS to sell the bank within five years after its acquisition, minimally at the value of its bailout, which means 4.8 times its book value. This price is far higher than the value of the country'€™s largest banks, which range only from one to three times the book value.

But the biggest barrier to the bank'€™s sale is the protracted criminal investigations by the Corruption Eradication Commission (KPK) to ascertain whether there was corruption within the decision-making process on the bailout.

The majority of the nine factions at the House of Representatives concluded in March 2010 that there were strong indications of malfeasance in the bailout process, thereby ordering the KPK to conduct criminal investigations.

The KPK, after more than two years of investigations, failed to find any conclusive evidence of graft in the bailout process, but it bowed to political pressure from several factions at the House to continue its criminal investigations indefinitely.

If the KPK investigations drag on until next year when the country will be preoccupied with legislative and presidential elections, the LPS will find it even more difficult to get buyers for the bank, which could worsen its condition.

Bank Mutiara will plunge into a legal limbo after November 2014 as the LPS can no longer own it after the sixth year of acquisition (bailout). This means that the LPS will have to sell the bank at whatever price.

The most opportune period for selling the bank is this year, but no investors would be willing to acquire Bank Mutiara if the KPK had not yet cleared the bailout process.

The LPS will be able to sell the bank below its bailout value next year, but who will be willing to face the political fury by selling it at a big discount amid the upcoming election year?

What misguided lawmakers '€” who continue to attack the bank bailout as a scandal '€” do not realize is that the longer the investigations drag on without any clear sign of resolution, the more damage will be done to Bank Mutiara.

The best way to serve the interests of the people and the banking industry in general is to stop all the political controversy over the bailout, prosecute whoever is found guilty of abusing the bail out fund and allow Bank Mutiara to grow strongly so that its sales value will be able to repay a part or all of its bailout cost.