NPL Ruling to be Implemented in June<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia said on Friday it would move ahead with its plans
\nto implement a regulation, starting next month, that requires
\nbanks to reduce their non-performing loans (NPLs) to a maximum of
\n5 percent of outstanding liabilities.<\/p>\n
Sjahril Sabirin, the central bank governor, told reporters he
\nwas optimistic that banks could meet the new requirement.<\/p>\n
\"The progress is okay so far. There are some banks that will
\nhave difficulties, but I think most banks can make it (the
\nrequirement),\" said Sjahril, adding that on a net basis, many
\nbanks had managed to lower their NPL ratio to below the 5 percent
\nlevel.<\/p>\n
The NPL ratio measures a bank's non-performing loans, those
\nwhich are more than 90 days in arrears, against its total amount
\nof loans outstanding.<\/p>\n
Currently, the banking industry still has a huge amount of bad
\ndebt, widely regarded as a legacy from the late 1990s financial
\ncrisis.<\/p>\n
As of last year, NPLs at domestic banks averaged around 10
\npercent of all loans.<\/p>\n
The central bank has said the ruling -- which has been delayed
\ntwice due to the banking sector's weak condition -- would aim to
\nmake banks more sound and prudent in managing their loan
\nexposures, thus preventing similar mistakes that it made in the
\npast.<\/p>\n
The absence of a proper credit-risk assessment was believed to
\nhave contributed to the collapse of the banking industry in 1997-
\n1998, as local banks channeled most of their funds to affiliated
\nbusinesses, or parties with strong political connections.<\/p>\n
On the other side, however, there are worries that the ruling
\nwill be too tough on the banks.<\/p>\n
The current unfavorable investment climate in the country has
\nincreased business risks, which will eventually make more of the
\nloans vulnerable to default.<\/p>\n
In his response, while conceding that not all banks would be
\nable to follow the new ruling, Sjahril said that the central bank
\nwould guide the failed banks to follow suit under certain steps.<\/p>\n
He said that under the central bank's standard operating
\nprocedures, banks which fail to meet the new NPL ruling
\nrequirement would be subject to intensive supervision which could
\nbe followed up by applying other steps such as placing central
\nbank staff within the particular bank.<\/p>\n
\"After those steps, we expect the failed banks will achieve
\nthe requirements,\" Sjahril added.<\/p>\n
A high ratio of non-performing loans will weigh on a bank's
\ncapital adequacy ratio (CAR), another indicator to determine a
\nbank's financial health which compares a bank's capital to its
\nrisk-weighted assets, including loans.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/npl-ruling-to-be-implemented-in-june-1447893297",
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