Bank foreign currency loans rise over 100% last year

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)