Perbanas warns of rise in bank NPLs<\/p>\n
Berni K. Moestafa, The Jakarta Post, Jakarta<\/p>\n
Bank non-performing loan (NPL) ratios are likely to rise
\ntowards the end of this year, as the sharp downturn in the global
\neconomy starts taking its toll on local industries, according to
\na banking association.<\/p>\n
Chairman of the Association of Private National Banks
\n(Perbanas) Gunarni Soeworo said on Thursday the economic fallout
\nfrom the global slump had yet to hit banks' performance here.<\/p>\n
\"Because of a slowing economy and the resulting higher risks,
\nwe might see a rise in NPLs again,\" Gunarni told reporters on the
\nsidelines of a seminar on national debt management.<\/p>\n
The current average NPL level of major banks is around 15
\npercent.<\/p>\n
A rise in NPL could spell trouble for banks scrambling to meet
\nBank Indonesia's year-end target of 5 percent.<\/p>\n
A greater NPL ratio could also create new risk for banks
\nstruggling to meet the central bank's 8 percent minimum capital
\nadequacy ratio (CAR) requirement. Banks must meet this
\nrequirement by the end of this year or risk closure.<\/p>\n
The CAR is the ratio between a bank's capital and its risk-
\nweighted assets including loans, and is deemed to be a vital
\ningredient to gauge its financial health.<\/p>\n
A rise in a bank's NPL ratio implies it faces a higher risk,
\nwhich could translate into a lower CAR level if the bank fails to
\noffset the new risks with additional capital.<\/p>\n
Analysts said that capital was still difficult to come by, a
\nsituation that was forcing many banks to restrict new lending.<\/p>\n
But existing loans could also turn sour, as the already slow
\nglobal economy has taken an unexpected turn for the worse.<\/p>\n
Gunarni said most local banks had allocated a large portion of
\ntheir credit portfolio to export-oriented businesses.<\/p>\n
A sharp cut in export demands could strike a blow to banks'
\nNPL ratios, and force them to reduce their exposure to export-
\noriented firms.<\/p>\n
She said banks would therefore likely change their loan
\nstrategy to finance firms boasting a sizable domestic market.<\/p>\n
\"Foreign and local businesses are reviewing their business
\nplans, consequently banks must do the same,\" she explained.<\/p>\n
But in the near future, Gunarni added, banks were likely to
\nbecome more selective in extending new loans.<\/p>",
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