Bad debts at state banks keep rising

Bad debts at state banks keep rising

JAKARTA (JP): Bad debts at the seven state-owned banks rose
further by around Rp 55 billion in the June-November period of
last year, to Rp 7.86 trillion (US$3.4 billion), the central bank
said yesterday.

Bank Indonesia Governor J. Soedradjad Djiwandono said the
continued increase in the state banks' bad debts was caused by a
further rise in the amount of non-performing loans turning into
fully unpaid credits.

The ratio of the state banks' debts against their outstanding
credits slightly declined, to 3.04 percent from 3.05 percent in
the same period, due to faster growth in credits.

"Hence, the state-owned banks' bad debts showed an increase in
absolute terms but a slight drop relative to outstanding loans,"
Soedradjad told Commission VII of the House of Representatives
(DPR) in a hearing here.

Bad debts at the seven state banks -- Bank Negara Indonesia,
Bank Pembangunan Indonesia (Bapindo), Bank Bumi Daya, Bank Rakyat
Indonesia, Bank Dagang Negara, Bank Ekspor Impor Indonesia and
Bank Tabungan Negara -- more than doubled from Rp the 3 trillion
level in December 1993.

Soedradjad said that the large portion of the state-owned
banks' bad debts in the country's total uncollectable loans was
partly the result of their dominant role in the banking industry
in the past.

Speaking at the hearing with the commission, which is in
charge of trade, finance and banking affairs, Soedradjad said
that overall bad debts in the country's banking industry rose to
Rp 10.46 trillion by last November, from Rp 9.97 trillion last
June.

In the same period, the bad debts at domestic private banks
declined to Rp 1.55 trillion from Rp 1.66 trillion. The level of
bad debts at foreign banks and foreign joint ventures rose to Rp
505 billion from Rp 454 billion, and those at provincial
development banks from Rp 454 billion to Rp 545 billion.

Supervision

At the hearing, the House members questioned the central
bank's monetary policy in the 1996/1997 fiscal year beginning in
April, and its measures against banks which did not comply with
its prudential regulations. The case of fraud at the branch
office here HongkongBank was also brought up during the meeting.

In regard to the compliance of the banking industry to the
central bank's prudential regulations, Soedradjad said that 70 of
the 240 banks in operations did not fully abide by the Legal
Lending Limit regulations.

He added that 18 banks did not comply with the Loan to Deposit
Ratio (LDR) requirement and another 21 banks failed to abide by
the minimum Capital Adequacy Ratio (CAR) requirement.

Soedradjad said the central bank is preparing stricter
measures against those not complying with the mandatory legal
lending limits.

The central bank issued a ruling in May 1993, limiting bank
loans to a group of non-affiliated companies to a maximum of 20
percent of a bank's capital. Lending to affiliated companies or
firms within the same business group of a bank is limited to a
maximum of 10 percent of the capital.

Banks were given five years to adjust the composition of their
loan portfolios to the new Legal Lending Limit. Loans to a group
of non-affiliated companies should, for example, have been
reduced to 50 percent of the capital by last December, and are
expected to be cut to 35 percent by March 1997 and 20 percent by
the end of 1997.

Lending to affiliated companies or firms of the same group
provided before May 1993 should also be reduced to 12.5 percent
of the capital by December 1995 and to 10 percent by March 1997.

However, many banks have not complied with the lending limit
regulation.

Soedradjad said that some banks had manipulated the
composition of their lending to affiliated companies, so that
they seem to be complying with the regulations, by means of an
exchange of credit portfolios with other banks.

"We have anticipated such trickery and will mete out strict
punishment if any bank is found to have engaged in such
practices," he said.

The strict enforcement of the lending limit regulation is
essential, not only because most of the non-performing loans have
been caused by violations of lending limits, but also to ensure a
more equitable distribution of credits in the country's economy,
he said. (hen)

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