BI may again postpone 5% NPL requirement<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia said on Friday it was considering delaying for
\na second time a ruling restricting the ratio of local banks'
\nnonperforming loans (NPL) to a maximum of 5 percent by the end of
\nthis year, citing a prolonged slump in the banking sector.<\/p>\n
BI Governor Sjahril Sabirin said the central bank was
\nreviewing the ruling, and suggested that a delay was likely as
\nmost banks had yet to meet the NPL target.<\/p>\n
\"We're thinking about it. There will soon be an official
\nannouncement about this,\" Sjahril said.<\/p>\n
The NPL ratio measures a bank's nonperforming loans against
\nits total loan portfolio. Nonperforming loans are loans on which
\ninterest payments are late by more than 90 days. Currently, the
\nNPL ratio among local banks averages 10.4 percent.<\/p>\n
Last September, Sjahril said he told banks to lower their NPL
\nratio to 5 percent by the end of this year or face \"measures\",
\nwhich he did not elaborate on.<\/p>\n
This would be the second delay of the ruling since last year.
\nBanks were told to achieve a 5 percent NPL ratio by the end of
\n2001, but Bank Indonesia issued a postponement because of the
\nadverse economic situation.<\/p>\n
Political instability in the months ahead of former president
\nAbdurrahman Wahid's ouster and the Sept. 11 terrorist strikes in
\nthe United States cast a pall over the local banking sector last
\nyear.<\/p>\n
Bank Indonesia considering a second delay of the plan
\nunderscores the continued adverse conditions in which banks here
\nare operating.<\/p>\n
Local banks took up the bad loans mainly during the 1997
\neconomic crisis. Most of these bad loans were transferred to the
\nIndonesian Bank Restructuring Agency (IBRA) and replaced with
\ngovernment bonds, known as recapitalization bonds. They amounted
\nto some Rp 430 trillion (about US$47 billion).<\/p>\n
Still, a large cache of nonperforming loans were left on the
\nbanks' balance sheets, while other loans turned bad in the
\nensuing years.<\/p>\n
The NPL ratio can be lowered either by restructuring bad loans
\nand turning them into performing loans, or by increasing the
\noverall size of a bank's loan portfolio.<\/p>\n
But restructuring talks are progressing slowly. And some
\nanalysts have warned of \"cosmetic\" debt restructuring deals that
\nfocus on rescheduling payments or adjusting interest rates
\nwithout dealing with the management problems that made companies
\nvulnerable to default in the first place.<\/p>\n
On the lending side, banking analysts have noted a slight
\nupturn in banks' lending activities as borrowers take advantage
\nof lower interest rates.<\/p>\n
With tighter credit policies since the economic crisis, this
\nuptick in lending sparked hope banks could lower their NPL ratios
\nby increasing the size of their loan portfolios.<\/p>\n
However, the central bank noted that the rise in loans was
\nmarginal, indicating that the private sector was not yet ready to
\ntake up new loans.<\/p>\n
Sjahril said the possibility of delaying the 5 percent NPL
\nratio target arose after the Oct. 12 Bali bombing further eroded
\nwhat was left of the country's fragile business confidence.<\/p>\n
He said the incident had heightened the risk of loans turning
\nbad, particularly loans related to the tourist sector.<\/p>\n
But Sjahril did say the banking industry was improving, albeit
\nslowly. He said several local banks, with certain conditions
\ntaken into account, had managed to lower their NPL ratios to
\nbelow 5 percent.<\/p>\n
The central bank has also issued a new ruling restricting the
\namount of non-restructured loans banks can purchase under IBRA's
\nmassive asset sales program.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-may-again-postpone-5-npl-requirement-1447893297",
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"sponsor": "Okusi Associates",
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