Bad credits increase
Bad credits increase
The quality of credit portfolios at all commercial banks, as
reported by central bank governor Soedradjad Djiwandono to the
House of Representatives on Tuesday, seemed to improve because
the proportion of non-performing credits declined to 12.64
percent of total loans outstanding as of January from 13.06
percent last September.
That is a big number indeed. In absolute terms, the non-
performing assets -- problem, doubtful and bad credits --
amounted to Rp 24 trillion (US$10 billion) or 30 percent of the
total volume of the state budget for the coming fiscal year.
These figures indicate that the banking industry is still
suffering a great deal from the "go-go lending" practices from
1989 to 1991.
More worrisome is the increase in the proportion of bad
credits to 3.97 percent in January from 3.88 percent last
September. This equals about Rp 7.5 trillion. The amount of bad
credits may continue to increase if banks do not improve the
quality of the remaining $6.6 billion in problem and doubtful
loans.
The central bank's report confirmed the public's concern about
state banks. The bulk of the bad credits, Rp 6.1 trillion, belong
to the seven state banks. The proportion of non-performing
credits at state banks, 20.2 percent, was also much higher than
the industry average of 12.64 percent.
Nonetheless, encouraging messages can also be gleaned from
Soedradjad's disclosure. The central bank seems to have tightened
its monitoring and assessment of banks' lending portfolios. As
Bank Indonesia's Director Hendrobudiyanto explained at the
hearing, the amount of bad credits surged by Rp 900 billion last
December alone. The increase was not caused by the worsening of
problem and doubtful loans, but due to a correction of previous
data based on fresh findings from on-site examinations.
This correction, we think, should be welcomed because it
resulted from a better supervision mechanism and is only the
immediate impact of the improvement. Previously, Bank Indonesia's
assessment of balance sheets and financial reports as well as on-
site examinations were conducted by different teams. Now the same
team is responsible for both audits at each bank.
Another encouraging message is the central bank's openness
about bad credits. Such frankness and honesty about the figures
is quite conducive in preventing wild rumors circulating about
the banking industry. Given the systemic risks encountered by
banks, timely, accurate, comprehensive and objective data is
crucial to prevent unnecessary jitters among the public. How can
an assessment of the health of the banking industry be carried
out if the statistics are flawed, outdated or fiddled with?
The central bank's statistics quite obviously show that the
banking industry, notably state banks, still have a long a way to
go to consolidate internally. It is therefore imperative that the
central bank continue to improve its supervision of banks to
force all banks to fulfill all prudent regulations.
The fact that the bulk of bad credits belong to state banks is
a strong reminder to the central bank to question why most bad
bankers work at state banks.