Economic analysts hail new loan writeoff plan<\/p>\n
JAKARTA (JP): The government's plan encouraging banks to
\nwriteoff problem loans is an appropriate way to deal with bad
\ndebts says analysts and economists.<\/p>\n
Christianto Wibisono, director of the Indonesian Business Data
\nCenter, said yesterday that banks have no choice but to remove
\nbad loans if they want to improve their financial performances.<\/p>\n
"Loan writeoff is the best alternative but banks, as a
\nconsequence, should take legal action against those defaulting on
\ncredits," he told The Jakarta Post.<\/p>\n
Kwik Kian Gie, an outspoken critic of the Indonesian economy,
\nhas a similar view of Bank Indonesia's plan to facilitate loan
\nwriteoffs in the banking industry.<\/p>\n
He said keeping bad loans on financial books would not only
\nworsen banks' financial performances but would also mislead the
\npublic about their financial strengths.<\/p>\n
Kwik said the central bank's plan to encourage writeoffs
\nshould have been done several years ago.<\/p>\n
A number of commercial banks, which used to treat removal of
\nbad debts from their balance sheets as strictly confidential,
\nhave in the last two weeks announced their writeoffs.<\/p>\n
State-owned Bank Rakyat Indonesia, for example, said last
\nweek it had written off over Rp 1 trillion (US$435 million) in
\nbad loans this year.<\/p>\n
Two private companies, Bank Niaga and Panin Bank, also
\nannounced similar measures to improve their financial soundness.
\nBank Niaga wrote off bad loans worth Rp 34.48 billion in 1995 and
\nPanin Bank wrote off bad loans worth Rp 38.5 billion.<\/p>\n
State banks<\/p>\n
According to Kwik, the country's seven state-owned banks,
\nwhose bad loans exceeded 5 percent of their total credits in
\n1993, have so far removed Rp 4.2 trillion in bad loans from their
\nbalance sheets.<\/p>\n
Kwik said the loans written off by the seven state banks were
\nonly a fraction of their bad loans. The state banks are Bank
\nRakyat Indonesia, Bank Pembangunan Indonesia (Bapindo), Bank Bumi
\nDaya, Bank Tabungan Negara, Bank Dagang Negara, Bank Negara
\nIndonesia and Bank Ekspor Impor Indonesia.<\/p>\n
"All bad loans in state banks should be removed and, if
\nnecessary, the government should use the state budget to finance
\nthe writeoff," he said.<\/p>\n
Writeoff is an accounting term for removing bad loans from a
\ncompany's books and charging them to its loan loss reserve
\naccount.<\/p>\n
Like Christianto, Kwik said the writeoffs should be followed
\nby legal action, such as suing borrowers who default.<\/p>\n
"Taking defaulting borrowers to court is necessary to recoup
\nunpaid credits," Kwik said while complaining that most writeoffs
\nby state banks were not followed by legal action.<\/p>\n
State banks require an approval from the Ministry of Finance
\nand the Development Finance Comptroller (BPKP) to writeoff loans
\nwhile private banks need shareholders' approval.<\/p>\n
According to the central bank, commercial banks' (which
\ninclude state and private banks) total non-performing loans grew
\nto Rp 30.39 trillion in April this year from Rp 27.88 trillion in
\nDecember 1995, and from Rp 26.16 trillion in December 1994. Their
\nratios against outstanding loans, however, declined to 10.75
\npercent in April 1996 from 10.41 percent last December, and from
\n12.05 percent in December 1994.<\/p>\n
Bad loans at the seven state banks declined to Rp 6.38
\ntrillion, or 2.2 percent of outstanding loans, in April this year
\nfrom Rp 6.39 trillion (2.39 percent of total lending) last
\nDecember. In December 1994 their bad loans totaled Rp 6.18
\ntrillion, or 2.85 percent of their outstanding loans.<\/p>\n
Private banks' bad loans were 0.55 percent of their
\noutstanding loans in April 1996, 0.54 percent in December 1995
\nand 0.75 percent in December 1994. (hen)<\/p>",
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