Bank Mandiri aims to cut bad-loan ratio to below 5 percent by 2007

Bank Mandiri aims to cut bad-loan ratio to below 5 percent by 2007

Aloysius Unditu, Blomberg/Jakarta

PT Bank Mandiri, Indonesia's biggest lender by assets, aims to reduce its ratio of non-performing loans to below 5 percent by 2007, complying with a central bank requirement for banks that will lead mergers and acquisitions.

"We are in the consolidation period now and we are targeting to reduce the ratio to below 5 percent," Johanes Bambang Kendarto, Mandiri's director for treasury, said in Jakarta today.

Mandiri had a net non-performing loan ratio, which excludes the value of collateral pledged against credits that turned sour, of 16 percent and gross non-performing loans of 25 percent as of June 30 this year. Mandiri had gross non-performing loans of Rp 25 trillion (US$2.48 billion) as of the end of June 30, Kendarto said

Indonesia's central bank, Bank Indonesia, is requiring a bad- loan ratio of 5 percent or less for lenders to qualify as so- called anchor banks that will lead mergers and acquisitions. The government is trying to consolidate a banking industry it rescued with a Rp 650 trillion bailout after the 1997-1998 Asian crisis.

Mandiri's bad loans increased after the central bank tightened rules in January, Kendarto said. The central bank required commercial lenders to classify as a loss any loan on which no principal or interest has been paid for 180 days, reducing the period from 270 days.

Loans to a borrower owing money to two or more banks will all be considered bad should just one go into default.

Mandiri, whose name means self-reliance in Bahasa Indonesia, was formed by merging four state banks -- PT Bank Bumi Daya, PT Bank Dagang Negara, PT Bank Ekspor Impor Indonesia and PT Bank Pembangunan Indonesia -- in July 1999.