BI to accelerate loan cleanup<\/p>\n
Soraya Permatasari and Arijit Ghosh, Bloomberg\/Jakarta<\/p>\n
Indonesia's central bank will inspect the nation's commercial
\nlenders to ensure they address their bad loans, accelerating a
\ncleanup of the US$132 billion industry.<\/p>\n
PT Bank Mandiri, the biggest lender, reclassified its loans
\nafter the regulator conducted an audit, central bank spokesman
\nHalim Alamsyah said on June 7. The bank's bad-loan ratio surged
\nmore than twofold and provisions tripled.<\/p>\n
\"We will also do that to other banks,\" the spokesman said. \"We
\ncan conduct on-site inspections to see if they have complied with
\nthe regulations.\" Alamsyah declined to specify a date for the
\nstart of the drive because the central bank wants to retain an
\nelement of surprise about the inspections.<\/p>\n
Indonesia is tightening lending rules as it tries to improve
\ntransparency and sell bank stakes to recoup Rp 450 trillion
\n($47 billion) spent to bail out lenders after the 1997 Asian
\nfinancial crisis. This may drive up bad-loan ratios and force
\nbanks to increase provisions, halting an earnings rebound,
\nanalysts such as Made Aditya Wardhana said.<\/p>\n
\"This will result in some banks slashing their earnings.\" said
\nWardhana, an analyst at G.K. Goh Stockbroker Pte in Jakarta.
\nBanks may have to cut their lending targets as a result, he said.<\/p>\n
Bank Indonesia is requiring banks to classify as a loan loss
\nany loan on which no principal or interest has been paid for 180
\ndays, reducing the period from 270 days, central bank Deputy
\nGovernor Maman Somantri said.<\/p>\n
Loans to a borrower owing money to two or more banks will all
\nbe considered bad should just one go into default, Somantri said
\nin a June 3 interview. Bad loans made up about 7.3 percent of
\ntotal bank credits in Indonesia as of May, an increase from 5.7
\npercent in April, Alamsyah said.<\/p>\n
Indonesia is establishing a database to allow banks to share
\ncredit information about customers. The system will be expanded
\ninto a credit bureau similar to TransUnion LLC and Equifax Inc.
\nin the U.S., Somantri said.<\/p>\n
At PT Bank Negara, Indonesia's No. 3 lender, the bad-loan
\nratio may rise to more than 6 percent from 5.5 percent, President
\nSigit Pramono said. The bank needs to reclassify as non-
\nperforming a loan to pulp and paper maker Raja Garuda Mas Group,
\nwhich defaulted on a payment to another bank, he said.<\/p>\n
At PT Bank Niaga, the eighth-largest lender, the net non-
\nperforming loan ratio, which excludes the value of collateral
\npledged against bad assets, may rise to more than 5 percent from
\n2.2 percent, President Peter B. Stok said.<\/p>\n
The central bank's tougher stance comes after Indonesian banks
\nset higher lending targets for 2005 because of an improving
\neconomy. The nation's $258 billion economy is forecast to expand
\n6 percent, the most in nine years, spurred by investment and
\nconsumer spending.<\/p>\n
Bank earnings rebounded last year together with the economy.
\nIndonesian banks had a combined profit of Rp 14.9 trillion in
\n2004, compared with a loss of Rp 2.4 trillion in 2000.<\/p>\n
\"Theoretically, asset quality should be improving at this
\nstage of the economic cycle but it is clouded by new regulatory
\nrequirements,\" said Alan Richardson, who helps manage $2.8
\nbillion at Baring Asset Management in Hong Kong.<\/p>\n
Bank Mandiri's bad loans surged to 17.8 percent of total
\nlending in the three months ended March 31 from 7.1 percent at
\nthe end of December. The surge reflected the central bank \"audit
\nand qualitative adjustments,\" Jonathan Zax, head of investor
\nrelations at the lender, said.<\/p>\n
Mandiri said May 30 first-quarter profit plunged 70 percent to
\nRp 519 billion. Bad-loan provisions tripled to Rp 763 billion
\nfrom a year earlier.<\/p>\n
The Attorney-General's Office is probing more than Rp 1
\ntrillion of loans at Mandiri, where the net bad-loan ratio is
\nalmost 11 percent, more than twice the 5 percent limit stipulated
\nby the central bank.<\/p>\n
Mandiri shares declined 22 percent this year, compared with a
\n10 percent gain in the benchmark Jakarta Composite Index. Bank
\nNegara, which has risen 1.5 percent this year, fell 1.7 percent
\nto Rp 1,700 at the close of trading in Jakarta today. Bank Niaga
\nfell 1.1 percent to Rp 455.<\/p>\n
\"Investors may as well stay away from the sector for now,\"
\nsaid Ferry Yosia Hartoyo, an analyst at DBS Vickers Securities in
\nJakarta.<\/p>\n
Indonesia has been trying to catch up with Southeast Asian
\ncountries such as Thailand and Malaysia, which acted faster to
\nfix their banks, encouraging mergers and acquisitions to help
\nthem gain size and strength.<\/p>\n
Indonesia has 133 banks. In Malaysia, 54 banks combined into
\n10 after the Asian crisis and in Thailand the number of lenders
\nfell to 12 from 16.<\/p>\n
With the tightening of loan-quality rules, \"banks in Indonesia
\nare reporting under a harsher regime than banks in Thailand or
\nMalaysia,\" said Peter Tebbutt, a senior director for bank ratings
\nat Fitch. With more banks to regulate, \"the quality of
\nsupervision and strictness of enforcement is not as good as in
\nMalaysia and Thailand.\"<\/p>",
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