Bank Mandiri seeks House approval for debt write-off proposal
The Jakarta Post, Jakarta
The nation's largest lender, Bank Mandiri, will seek approval from the House of Representatives to write-off its troubled credits totaling Rp 21 trillion (US$230 million) in a move to ease the huge burden on its financial balance.
Nimrod Sitorus, the bank's director and corporate secretary, said on Tuesday that such a move would allow the bank to erase the troubled loans from its balance sheet, meaning that it would no longer have to allocate huge provisions to cover for them.
"However, it has to be understood that a write-off does not mean the loans become uncollectable. Mandiri will retain the right to collect the money, along with the collateral, but at a reduced amount.
"So basically, it's a hair-cut for the debtors," said Nimrod during a breaking of the fast gathering.
The government is eligible in certain circumstances to grant a debt write-off through a presidential decree, but only for debts worth below Rp 100 billion.
"More than that, they should be approved by the House. That's what we intend to do," Nimrod said, adding that the bank expects to meet the legislators by the end of the year.
Some of the troubled loans are ones that were the subject of lengthy legal disputes.
But Nimrod said that none of the debts had come from loan assets the bank bought from the now-defunct Indonesian Bank Restructuring Agency (IBRA).
Bank Mandiri was among the most active lenders that managed to purchase non-performing loans (NPLs) taken over by IBRA from the banking sector during the crisis.
Of the total bad loans, Nimrod said, Rp 4.6 trillion were those of an individual size of below Rp 5 million and, thus, are categorized as loans owed by small and medium enterprises (SMEs).
As for the recovery-rate target, the bank is hopeful of recovering around 30 percent to 50 percent of the outstanding debts.
"Such a scheme is actually a win-win solution, both for the banks and debtors. Although at discounted prices, banks can cash in the debts that have long been idle, and perhaps start making money out of them.
"It would also be helpful for debtors, as surely they will not want to remain on the banks' blacklists forever," he said, adding that the target should be realistic as much of the collateral was of a fairly high value, such as land and buildings.
Meanwhile, it was also revealed that, as of June 2004, the bank had unloaded some Rp 61 trillion of Rp 173 trillion worth of recapitalization bonds it received from the government during the financial crisis.
As of the first half of the year, the bank's recapitalization bonds stood at Rp 102.3 trillion.
"We sold them to the bond market and replaced them with more productive assets, such as loans. We are using the proceeds to cover the high interest we have to pay to our depositors," Kartika Wirjoatmojo, vice president of the bank's strategy and performance division, said.