Bank foreign currency loans rise over 100% last year

JAKARTA (JP): Foreign currency loans extended by domestic banks increased in their rupiah value by over 100 percent to Rp 117.3 trillion (US$12.34 billion) last year due to the sharp appreciation of the U.S. dollar, Bank Indonesia (BI) Governor J. Soedradjad Djiwandono said yesterday.

Speaking at a hearing with the House of Representatives, Soedradjad said the foreign-currency denominated loans were part of the total outstanding credits of the banking industry totaling about Rp 389.3 trillion as of Dec. 1997.

He explained that 29 percent of the total loans went into the industrial sector, 21.8 percent to the trade, restaurant and hotel sector, 17.6 percent to the service sector and between 1.3 and 10.2 percent to other sectors.

"The sharp increase in the foreign currency loans was mainly attributed to the sharp appreciation of the U.S dollar to the rupiah," he told House Commission VIII for state budget and finance, research and technology.

The rupiah has dropped some 80 percent in value against the greenback since January last year or about 75 percent since the crisis first hit the country in July.

Analysts have said that the sharp fall of the local currency against the U.S. dollar has caused major problems for banks which have lent foreign currencies to local companies.

The situation has raised the amount of bad debts facing the banks causing severe cash-flow problems.

Many analysts believe that during last month alone, BI injected trillions of rupiah to banks facing cash-flow difficulties.

Managing Director for Bank Supervision Mukhlis Rasyid admitted the central bank's increasing injection of capital to the industry during the past few weeks to bail out banks, but declined to disclose the amount.

"The amount of the injection is within the allowable level set by the IMF," he pointed out.

He explained that the central bank only rediverted the money of state banks and foreign banks which received an excess of liquidity when depositors rushed to deposit savings in what they believed to be the more reliable banks.

Soedradjad also said it had lowered the foreign exchange minimum reserves requirement from 5 percent to 3 percent as of October 1997 to improve the foreign currency liquidity in the banking industry.

"This was part of the efforts made to increase the supply of dollars in the market," he said, adding that the lower requirement had added some $900 million to the market.

BI also told the House that it would make its so-called pre- shipment and post-shipment credit facilities more available to provide liquidity for exporters during the current tight money condition.

Soedradjad said the discount facilities had long been available to the exporters but the high level of irregularities in the use of the facilities had prompted the central bank to squeeze the supply.

"But it would be difficult if all (export companies) asked for the facilities at the same time," he said.

He said BI would prioritize the supply to exporters which could show their "product cycle", relating to how much imported raw materials they needed.

BI also told the House that it had guaranteed letters of credit (L/Cs) opened at domestic banks. The governor said this included a 100 percent up-front cash confirmation for opening L/Cs.

The loss of confidence in domestic banks has prompted foreign banks to cancel Indonesian L/Cs, causing import-financing problems for local importers, many of whom are also exporters.

BI also explained that it was preparing several new regulations, giving priorities to banks which would allow foreign investment.

Soedradjad said the role of foreign investors could be to strengthen the capital and the quality of operation and human resources of domestic banks.

He said he expected the various reform programs to improve confidence in the country's banking industry.

He hoped that Indonesians with savings deposited overseas, rumored to be as high as $85 billion, would repatriate their earnings.

"The rate of return here is still attractive compared to the ones offered overseas," he pointed out. (08)