Bad loans at private banks on decline

Bad loans at private banks on decline

JAKARTA (JP): Bad credits at Indonesia's private banks
declined by 6 percent within five months to Rp 1.6 trillion
(US$695 million) as of last November, said the chairman of the
Federation of National Private Banks (Perbanas), Trenggono
Purwosuprodjo.

Trenggono told a hearing with the House of Representatives
commission for finance, trade and cooperatives yesterday that the
amount of bad loans at private banks decreased from Rp 1.7
trillion, or 0.70 percent of their total credits outstanding in
June, to Rp 1.6 trillion in November.

He added that the bad loans as of November represented 0.60
percent of their total outstanding credits.

He acknowledged difficulties in a quick elimination of the bad
loans. "But there is still a fair chance for the private banks to
decrease them to as low as 0.2 percent," he said.

In comparison, according to the latest Perbanas data, bad
credits at the seven state-owned banks increased from Rp 7.3
trillion as of June last year to Rp 7.9 trillion five months
later. But in terms of a percentage of their total credits, the
bad credits decreased slightly from 3.05 percent to 3.04 percent.

Perbanas groups 164 private domestic banks in the country.

He cited the violation of legal lending limits as one of the
main reasons for the bad loans.

The rule on legal lending limits stipulates that lending by a
commercial bank to a single customer or a group of companies
cannot exceed 20 percent of its capital, while lending to a
borrower affiliated with the bank cannot amount to more than 10
percent of its capital.

On the question of interest rates, Trenggono noted that
current interest rate levels should be maintained to prevent the
outflow of funds to foreign countries.

Currently, deposit rates in private banks are averaging 17
percent per annum, while lending rates are at an average of 21
percent.

"The present high interest rates are only temporary. They are
necessary to cool down the overheating economy," he said, adding
that the rates should be kept until the overheating problem is
resolved. (13)