BI limits bank purchase of IBRA assets<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia is restricting the amount of loans banks may
\npurchase from the Indonesian Bank Restructuring Agency (IBRA)
\nunder a new ruling protecting them against bad debts.<\/p>\n
However, the restrictions could slow IBRA's asset disposal
\nprogram.<\/p>\n
Bank Indonesia regulation No. 4\/7\/2002 on the principle of
\nfrugality in purchasing IBRA credits, restricts IBRA asset
\npurchases to 50 percent of a bank's core capital. The ruling took
\neffect on Sept. 27.<\/p>\n
\"We feel this (restriction) is necessary to maintain banks'
\nhealth,\" Bank Indonesia governor Sjahril Sabirin told reporters
\non Friday as quoted by Antara.<\/p>\n
Core capital refers mainly to a bank's capital belonging to
\nits owners. Sjahril said the 50 percent limit is based on the
\ndiscounted purchase value of the debts and not their book value.<\/p>\n
The ruling limits banks exposure to IBRA's bad debts, many of
\nwhich are being sold unrestructured.<\/p>\n
Set up in 1998, the agency is in charge of restructuring loans
\nit has taken over from banks that were hit by the 1997 economic
\ncrisis. Replacing the banks' non performing loans are government
\nfunded recapitalization bonds.<\/p>\n
To date the agency controls around Rp 273 trillion (about
\nUS$30 billion) worth of non-performing loans.<\/p>\n
IBRA is suppose to restructure then return the loans to pull
\nout recapitalization bonds from the banks' balance sheets.<\/p>\n
But a prolonged sluggish economy has made loan restructuring
\ndifficult, forcing IBRA to start selling them unrestructured.<\/p>\n
Although offered at heavily discounted prices, unrestructured
\nloans are non performing ones, meaning banks must waive interest
\nearnings until they can secure a restructuring deal with debtors.<\/p>\n
This situation risk banks' already weak capital adequacy ratio
\n(CAR).<\/p>\n
CAR measures a bank's capital against its risk weighted
\nassets, consisting mainly of loans. If a bank's CAR falls below
\neight percent, Bank Indonesia may shut it down.<\/p>\n
Five years after the crisis and after around $60 billion was
\nspent recapitalizing banks, low CAR levels remains the biggest
\nthreat simmering across the banking sector.<\/p>\n
Bank Indonesia's latest ruling seeks to protect banks from
\naccruing new bad loans that would further stress their CARs.<\/p>\n
Bank analyst Elvyn Masassya however warned the ruling could
\nhurt banks by hampering efforts to seek new loans.<\/p>\n
He added an article requiring banks to make provision for the
\nbook value instead of the discounted purchase value of the loans,
\nwould also discourage them to seek IBRA credits.<\/p>\n
For IBRA the central bank ruling effectively cuts the amount
\nof loans it can return to the banking sector and thus
\nrecapitalization bonds it can pull out.<\/p>\n
\"This clearly works against IBRA's asset disposal program,\"
\nsaid Elvyn.<\/p>\n
But Sjahril dismissed the notion that the central bank's new
\nruling was undermining banks' capacity to absorb IBRA assets.<\/p>\n
At 50 percent of banks capitals, he said, there was still
\nplenty of cash left to purchase many IBRA assets.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-limits-bank-purchase-of-ibra-assets-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}