Banks prodded to cut debt level to 5% in 2001

JAKARTA (JP): Bank Indonesia will push the country's surviving banks to cut the level of nonperforming loans (NPLs) from about 60 percent at present to around 5 percent by 2001.

The central bank's deputy governor Subarjo Joyosumarto said here on Thursday that Bank Indonesia (BI) had formed a debt restructuring task force to achieve the target.

He said the task force had a mission to help the banks clean up between Rp 84.5 trillion to Rp 94.5 trillion (US$11.81 billion) in nonperforming loans within the next two years.

"We'll make efforts to clean up the nonperforming loans of all banks so that the level won't exceed 5 percent by 2001," he told reporters on the sidelines of a bank gathering.

He said that the task force would play a mediator role between the banks and the debtors to restructure the problem loans.

"Most of the nonperforming loans are owed by businesses operating in the trade, industry and construction sectors," Subarjo said.

He said that BI's task force would handle the NPLs not taken over by the Indonesian Bank Restructuring Agency (IBRA).

IBRA has collected over Rp 220 trillion in NPLs from the country's seven state banks, nine private banks, which are being recapitalized by the government, and 11 banks either taken over or closed-down.

Subarjo said that domestic banks could not start lending without efforts to clean up the NPLs.

"BI is now concentrating in restructuring the nonperforming loans in order to make the banks healthy," he said.

He said that the problem loans handled by BI's task force are divided into three categories: substandard loans, doubtful loans, and NPLs.

Loans fall under the substandard category when a debtor can not pay the interest rate between 90 to 180 days, while loans are treated as doubtful when the debtor can not make interest payments between 180 to 270 days.

Subarjo explained that BI's task force was handling all of the problem loan categories of the 74 private banks which didn't have to join the government-sponsored recapitalization program, 27 provincial development banks, 30 joint venture banks and foreign banks.

He said that the NPLs of the 74 private banks totaled Rp 9 trillion, while the 27 development banks was Rp 2.5 trillion, the 30 joint venture banks was 14 trillion and the foreign banks was Rp 9 trillion.

Subarjo also said that the task force was overseeing the restructuring of the substandard and doubtful loans of private banks joining the government-sponsored recapitalization program, which amounted to between Rp 50 trillion to Rp 60 trillion. The loans are from 11 banks which were taken over and seven state banks.

Under the government bank restructuring program, the bad loans of the above banks are all transferred to IBRA.

The government started the recapitalization of 23 banks last week by issuing some Rp 103.83 trillion bonds.

The government is also planning to launch another Rp 247.79 trillion in bonds issued particularly for recapitalizing the country's seven state banks.

Subarjo said that a resolution to the banking industry's problem loans was an essential factor considered by foreign investors before investing in local banks.

He pointed out as an example that foreign investors with interest in buying into Bank Niaga had demanded a clear scenario on how the bank would resolve its problem loans.

He said that the foreign investors feared that loans currently under the doubtful category could easily turn into bad loans in just six months.

He said that the foreign investors preferred the former bank owners to be responsible for the NPLs.

Bank Niaga has been temporarily taken over by the government as the former owners could not come up with the necessary cash requirement to join the government recapitalization program.

Restructuring the problem loans and NPLs of the banking sector is much easier said than done. The government has been dragging its feet in the restructuring process as debtors, particularly well-connected businessmen, have been avoiding to come to the negotiation table to restructure loans.

In a bid to push the debtors to agree to debt restructuring, IBRA and several banks have disclosed a list of some of the worst debtors to the public. (rei)