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)