Banks' NPLs dropped to below 20% in September

JAKARTA (JP): Bank Indonesia director for banking supervision Siti Fadjriah said Wednesday that non-performing loans (NPLs) in the country's banking sector in November last year declined to less than 20 percent from 28 percent in September.

Siti said that banks had 100 percent provisions for the NPLs.

"But, God willing, the target of 5 percent NPL level by the end of this year can be achieved," she told a press conference.

She admitted, however, that restructuring the remaining NPLs would be difficult because most were owed by debtors who could not pay.

The government has decreed that domestic banks' NPLs must not be greater than 5 percent by the end of this year.

The government has also decreed that banks must have a minimum capital adequacy ratio (CAR) of 8 percent by the end of the year or risk closure.

Siti said that 10 banks still have CAR levels of less than 8 percent.

The government has issued bonds worth some Rp 430 trillion (US$46 billion) to help finance the bank recapitalization program. Rather than cash, the government injected bonds to recapitalize the banks.

But prolonged malaise in the banking sector has kept many banks struggling to attain a healthy capital condition.

Indonesia's banking sector was badly hit by the Asian financial crisis that started in 1997. Debtors could not repay loans and CAR levels dropped into negative territory. Of the more than 200 banks before the crisis, 66 have been forced to close.

But, according to Siti, the condition of the banking sector has improved, although progress is slow.

"The banking condition in general is progressing, but at a snails pace ... banks are returning to profitability," she said.

"Condition in 2000 were better than in 1999," she said.

"Banks no longer suffer negative spread problems," she added.

She said that banks had started to provide credit, but in small volume only.

Siti said banking assets were dominated by recapitalization bonds and Bank Indonesia SBI promissory notes.

She added that only about 30 percent of the assets were in the form of credit.

Siti said that since most of the banking assets were in the form of SBI notes and government bonds, banks could not easily issue new loans as the paper had to be sold to obtain cash.

"But there is no secondary market for the government bonds yet," she said.

Coordinating Minister for Economy Rizal Ramli said recently that he would discuss with Bank Indonesia early this month ways to push banks to resume lending to the cash-strapped real sector.

Rizal said there was some Rp 425 trillion in third party funds sitting idle in the banking sector.

The government has launched several measures to activate the secondary market for government bonds.

The government has decreed that banks may now exchange part of their government bonds for new bonds carrying higher interest rates in order to attract investors.

The government is also considering waiving the 0.03 percent transaction tax to attract investors into the bond market.

The finance ministry is expected soon to allow pension trusts to invest up to 100 percent of their funds in government bonds. (rei)