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)