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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