Wiping out past mistakes<\/p>\n
For the past several years, many Indonesian banks have been
\nstruggling to collect debts that have turned sour, or what the
\nindustry terms as nonperforming loans. They have not been
\nsuccessful. The total amount is not only staggering, it has also
\nbeen growing: Rp 30.39 trillion in April, compared to Rp 27.88
\ntrillion last December, and Rp 26.16 trillion in December 1994.
\nThe size of these nonperforming loans amounts to about a third of
\nthe envisaged government spending of Rp 90.62 trillion for the
\ncurrent fiscal year.<\/p>\n
The problem loans, which average about 10 percent of the
\nbanks' total outstanding lendings, have been saddling the balance
\nsheets of many banks and have proved a major obstacle to number
\nof giant state-banks which plan to go public.<\/p>\n
Some relief is finally on the way. Bank Indonesia Governor J.
\nSoedradjad Djiwandono announced last week that the central bank
\nis drafting a new rule to help banks write off their bad loans,
\nwith tax relief as one measure. The ability of any bank to write
\noff its bad debts, however, is contingent upon the existence of a
\nloan loss reserve account. Unless a bank has built up sufficient
\nreserves, it is unable to write them off.<\/p>\n
The new measure will chiefly benefit the seven government-
\nowned banks -- Bank Rakyat, Bank Negara Indonesia, Bank Tabungan
\nNegara, Bank Dagang Negara, Bank Ekspor Impor Indonesia, Bank
\nPembangunan Indonesia (Bapindo) and Bank Bumi Daya. These seven
\nbanks have not only had to fight off the problems of bad debts,
\nthey have also had to fight off fierce competition from private
\nbanks. Competition has seen their roles in the industry shrink
\nfrom 80 percent of the country's total banking assets, funds and
\ncredits in the early 1980s to below 40 percent.<\/p>\n
With the new measure, state banks will immediately be able to
\nwrite off Rp 6.38 trillion in bad debts from their books,
\nrepresenting 2.2 percent of outstanding loans as of last April.
\nIn contrast, private banks' bad loans were put at 0.55 percent of
\ntheir outstanding loans in April 1996.<\/p>\n
The immediate impact of the policy will be an improvement in
\nthe balance sheets of these banks. Writing off bad debts is
\nnormal in modern banking elsewhere in the world, and there is no
\nreason why the practice should be discouraged here. On the other
\nhand, allowing bad debts to remain on the banks' books for ever
\ncould eventually undermine public confidence. It is commonly
\nknown that some banks have created window dressing to conceal the
\nsize of their problem loans, including extending fresh loans to
\nits debtors to pay off the nonperforming loans. The new policy
\nwill at least encourage these banks to come clean and spare them
\nfrom having to deceive the public and their shareholders.<\/p>\n
But while the new facility is welcome, this is no pretext to
\nabandon the policy of prudent lending, which is always a
\ntemptation when the going gets rough. At a glance, writing off
\nbad loans may seem as merely the transferal of a debt from one
\naccount to another, but it eventually comes off profit that would
\notherwise go to shareholders, which in the case of state-owned
\nbanks is the government and the people it represents.<\/p>\n
The sheer size of the nonperforming loans not only reflects
\npast mistakes committed by banks, but also poor supervision by
\nBank Indonesia during the period of rapid credit expansion of the
\nlast several years. It would be easy to blame past policies for
\nthe present trouble, but the fact that the size of nonperforming
\nloans has been increasing in absolute terms means that banks,
\nparticularly state banks, have not fully come to terms with the
\nproblem to this day. So while they're writing off their past
\nmistakes, we have yet to be convinced that they will not make the
\nsame mistakes again.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/wiping-out-past-mistakes-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}