But as the fifth anniversary of Suharto's fall approaches, BCA has not only survived but thrived. Last March, the government auctioned off a 52% stake in BCA to a consortium of Indonesian and foreign investors. Today BCA, Indonesia's biggest private bank, is in excellent health. ABN Amro Securities Indonesia estimates that deposits grew 9%, to $10 billion, last year, while BNP Paribas Peregrine says profits totaled $378 million on gross income of $1.65 billion. "We have turned the tables around," boasts Djohan Emir Setiyoso, a career state-bank executive who was appointed CEO of BCA when it was nationalized in 1998.
What's the secret of BCA's success? First, the government's bank-workout agency, which took over the battered BCA during the 1998 crisis, was kind enough to take over the bank's bad debts and then recapitalize it with $6.2 billion in government bonds, whose high interest rates give BCA a steady income. Just as important, BCA has made itself a crucial link between Indonesians in every part of the country through its extensive branch and ATM network. BCA boasts 7 million depositors spread across Indonesia's vast archipelago. It serves them through 800 branches and 2,200 ATMs located in all 27 provinces. In a system unique in Indonesia and perhaps in Asia, business customers and consumers can use the network to transfer cash instantly.
Here's how the network operates: Each branch and ATM is linked by satellite to the bank's electronic-payments hub in Jakarta, so all transactions are in real time. When a small businessman deposits cash into an account at an ATM on the island of Batam to pay for supplies, his supplier on the island of Lombok, 5,000 kilometers to the southeast, can withdraw it within seconds. The catch is that these services are free of charge only to depositors.
This extensive instant-cash system has made BCA attractive to investors. Indeed, when BCA went to auction, a bidding war broke out between London-based Standard Chartered Bank and a group led by Farallon Capital Management of San Francisco. Farallon bought the stake through the Indonesian Bank Restructuring Agency (IBRA) for $542 million. The other major Indonesian banks that IBRA controls are still so sickly they have yet to attract buyers. "We were the first out of the gate," says Eugene K. Galbraith, BCA's nonexecutive chairman, who was brought in by Farallon.
Farallon got a good deal. "The reason why they [BCA] are the clear leader is they have the benefit of this distribution network and they can gather in cheap deposits," says a banking analyst at a brokerage in Hong Kong. In an increasingly chaotic country, where public services such as postal deliveries are deteriorating, the appeal of BCA's electronic-payments system is so strong that customers are willing to take lower interest rates on deposits to get access.
BCA, however, has yet to turn all these cheap deposits into profitable loans: It has wisely refrained from lending too aggressively in the very fragile Indonesian economy. "It's not yet the ideal balance sheet," says Setiyoso, "but the most important thing is to resist the temptation of wild lending before we have the credit infrastructure in place." For the future, BCA has ambitious plans to triple its lending to the small and midsize business owners who use its instant-cash network. To that end, 50 advisers from Deutsche Bank are now training BCA's loan officers in credit-risk management. The fact that BCA has the confidence to try to lend in Indonesia's remote towns makes it a rare bright spot in a still-troubled country. By Michael Shari in Jakarta