14 banks fail to meet NPL requirement by deadline
Dadan Wijaksana, The Jakarta Post, Jakarta
Bank Indonesia said on Thursday that 14 banks had failed to cut their non-performing loan (NPL) ratio to the mandatory 5 percent level by the June 1 deadline.
Governor Burhanuddin Abdullah said that the central bank would station its officials in the banks under an intensive surveillance program to make sure that the banks took serious steps to lower their NPL ratios.
"As of now, 14 banks have yet to meet the requirement for various reasons, with the total value of NPLs being around Rp 5 trillion (about US$618 million).
"Out of the total, around Rp 3 trillion' worth have turned bad entirely," Burhanuddin told lawmakers in a hearing with the House of Representatives' Commission IX on financial affairs.
The NPL ratio requirement is part of the effort to force banks operating in the country to meet international best practice.
NPL ratio is a comparison between a bank's loans that have turned bad and its total loan exposure. A loan is declared as being non-performing if interest payments are 90 days overdue.
Burhanuddin said that 8 of the banks whose NPL ratios were still above 5 percent were joint ventures, while the others were local banks. He did not mention the names of the banks.
Based on the new ruling, banks that still falling short of the requirement will be subject to various measures aimed at preventing any difficulties arising.
These include: imposing a tighter monitoring system on the banks to oversee the implementation of the action plans drawn up by the banks to deal with the problem, intensifying communication with the bank management, and conducting inspections.
A high NPL ratio would weigh heavily on the bank's capital adequacy ratio (CAR), another measure used to determine a bank's health.
Elsewhere, Burhanuddin said that there were various reasons why the 14 banks had failed to fulfill the NPL ratio requirement on time.
"Most of these banks have shown good faith in trying to comply with the ruling, but they need more time to do so because of the delicate obstacles they are facing in connection with their NPLs," he said.
He explained that 8 of them had most of their NPLs in the form of syndicated loans -- which would take a longer time to be settled -- while there were also banks that had to go through legal proceedings to recover their loans.