Bad debts still at safe level: BI chief

Bad debts still at safe level: BI chief

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
dismissed yesterday any suggestion that bad debts were adversely
affecting the banking industry, saying that the ratio remained
within tolerable limits.

Speaking in a seminar on possible solutions to Indonesia's
problem loans, the central bank governor said that the level of
bad debts was yet to affect the banking industry or the country's
economy as a whole.

"In order to guarantee that the level of problem loans is
really at a safe level, Bank Indonesia has intensified its
supervision of banks encountering difficulties," Soedradjad told
a seminar at the Financial Club.

Speakers at the seminar, which was convened by the STIE IBII
business school, included the outspoken economist Kwik Kian Gie;
Robert Clark, a former U.S. currency controller; and William
Haworth, the managing director of Barents Group LLC.

Soedradjad told the seminar that the central bank had adopted
a number of resolutions in order to deal with the problem loans,
which have become a subject of public debate over the past two
years.

The three resolutions dealt with the management of the
existing bad loans, the introduction of intensive supervision of
banks incurring a large number of bad debts and taking preventive
measures against new problem loans, he said.

The central bank recently issued four new regulations as part
of its efforts to prevent a further increase in bad debts. The
regulations include a requirement that banks submit an annual
working program and that they publish financial reports.

In a recent parliamentary hearing, the central bank governor
said that the level of bad debts in the country's commercial
banks rose to 3.97 percent of their outstanding credits, of about
Rp 188.94 trillion (US$85.88 billion), as of January, up from
3.88 percent as of September 1994.

The level of bad debts in state banks alone, which control
around 50 percent of the lending market, reached a higher level
-- 5.8 percent or about Rp 6.1 trillion -- as of January.

Increase

The increase in the level of bad debts has taken place amid
the central banks's intensive efforts to deal with the problem.
Soedradjad said the rise reflected an increase in the number of
the doubtful loans turning sour.

Meanwhile, Kwik, who chairs the research and development
agency of the Indonesian Democratic Party (PDI), told the seminar
that the level of the country's bad debts was no longer safe.

"The state banks have technically gone bankrupt with their
high level of bad debts. That indicates that the level of bad
debts is no longer safe," he said.

Soedradjad acknowledged that the adoption of the three
resolutions would not immediately resolve the difficulties
because, he said, dealing with problem loans, especially the
existing bad debts, was not only complicated but would also take
time.

The central bank has intensively assessed the nature and level
of Indonesia's problem loans to ascertain their impact on the
banking system and the economy as a whole, he said.

"The assessment proves that the country's bad debts are still
within the safe limit," said Soedradjad. (hen)