Banks criticized for write-off of bad loans

Banks criticized for write-off of bad loans

JAKARTA (JP): Accountants yesterday criticized commercial
banks' recent steps to write off part of their bad loans to
improve their image in their financial reports.

Chairman of the Indonesian Accountants Association (IAI)
Katjep K. Abdoelkadir said in a seminar yesterday that a bank
could not directly write off a creditor's bad debt without using
general accounting procedures.

"A bank has to initially evaluate a debtor's business and then
to consider it as totally bankrupt before it files the credit
case to the court for writing off the debtor's borrowing." Katjep
said.

Bank Indonesia Governor Soedradjad Djiwandono disclosed to
Commission VII of the House of Representatives (DPR) in a hearing
here on Wednesday that several banks had written off part of
their bad loans.

Katjep said a bank should get permission from the court before
writing off its bad loans and seizing and selling the debtor's
collateral.

He said the public does not completely believe the financial
statements of commercial banks after a Rp 1.3 trillion (US$620
billion) loan scandal, which involved the state-owned Bank
Pembangunan Indonesia (Bapindo) and the Golden Key Group of
companies. A Bapindo executive and Golden Key's president are
currently on trial in the South and Central Jakarta district
courts.

Katjep said the write-off policy might be aimed at regaining
the public's confidence.

According to a Bank Indonesia director, Hendrobudiyanto, a
bank can write off bad loans after their borrowers fail to repay
debts for three consecutive years.

Katjep said the three-year period is too long if the loans are
obviously unpayable.

The chief of the Ethics Code Committee of IAI, Theodorus
Tuanakota, said the period depends on the quality of the loans.
It can be below three years if the loans are small and more than
three years if they are large.(02)