Bank Indonesia to facilitate loan write-off

Bank Indonesia to facilitate loan write-off

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
said yesterday that the central bank is formulating a regulation
to help banks write off their bad loans.

Speaking at a hearing with the House of Representatives,
Soedradjad said the move is part of the central bank's effort to
solve problem loans in both state-owned and private banks.

"The removal of bad loans from banks' balance sheets will be
mandatory in the future, especially for those who have sufficient
reserves," he told House Commission VII for finance.

He said the central bank is still assessing the possibility of
tax facilities to encourage writeoffs.

The central bank's statement followed last week's announcement
by state-owned Bank Rakyat Indonesia that it had erased more than
Rp 1 trillion in bad loans from its balance sheet.

Hendrobudiyanto, the central bank's managing director for
supervision, said the write-off is common practice, as long as
the bank has sufficient reserves to offset the unpaid loans.

He acknowledged that Bank Rakyat is not the only state-owned
bank to have wiped a portion of its loans from its balance sheet.

"A number of state and private banks have carried out the same
approach as window dressing to their financial performances," he
said. Hendrobudiyanto said other banks are restricted from taking
similar measures by several constraints, such as the additional
tax burden resulting from the accumulation of their reserves, and
the reluctance of shareholders.

State banks, for example, must receive approval from the
Ministry of Finance and the Development Finance Comptroller
before undertaking a write-off. Private banks usually seek
approval from their shareholders.

The banks cannot inform defaulting borrowers that their loans
have been written off. Secrecy keeps the special division taking
over the bad credit from facing even more trouble in recouping
the bad loans.

Hendrobudiyanto said using equity funds to increase reserves
is taxable especially if the amount exceeds the legal reserve
requirement which, at present, is set at 3 percent of a bank's
deposits.

"The tax treatment on the creation of reserves is now being
reviewed so banks will no longer face tax problems in writing off
their loans," he said.

Soedradjad said the central bank has approached the chronic
problem of bad loans in a number of ways over the last three
years.

To deal with bad loans in state-owned banks, Bank Indonesia,
for example, has established a special supervisory team to
monitor the banks' credit.

The team has found at least 1,500 companies, mostly owned by
large business groups, have bad debts at the seven state-owned
banks -- Bank Rakyat, Bank Negara Indonesia, Bank Tabungan
Negara, Bang Dagang Negara, Bank Ekspor Impor Indonesia, Bank
Pembangunan Indonesia (Bapindo) and Bank Bumi Daya.

Nearly half the bad debts are being paid, and others have been
rescheduled, he said. He added that 835 bad debt cases are being
negotiated.

Soedradjad said total nonperforming loans grew to Rp 30.39
trillion as of April, from Rp 27.88 trillion last December. They
were 26.16 trillion in December 1994.

He, however, said the ratio of nonperforming loans to
outstanding loans declined to 10.75 percent in April, from 10.41
percent last December, and from 12.05 percent in December 1994.

"The decline reflects an improvement in the quality of bank
credits in the last three years," he claimed.

The nominal value of the bad loans in the seven state-owned
banks slightly declined to Rp 6.38 trillion, or 2.2 percent of
their outstanding loans as of April, from Rp 6.39 trillion (2.39
percent) in December 1995. Their bad loans totaled Rp 6.18
trillion in December 1995, or 2.85 percent of their outstanding
loans.

The bad loans of domestic private banks reached 0.55 percent
of their total lending as of April 1994, rising from 0.54 percent
in last December, and from 0.75 percent in December 1994. Bad
loans at foreign and joint venture banks were 0.9 percent of
their total lending as of April, as compared to 0.18 percent last
December, and 0.20 percent in December 1994. (hen)