BI defends NPL ruling despite criticism
Dadan Wijaksana, The Jakarta Post, Jakarta
Bank Indonesia stressed on Friday that banks must reduce their nonperforming loan (NPL) ratio to a maximum of 5 percent by June 2003, despite complaints from some bankers and analysts that the deadline is unrealistic.
Sjahril Sabirin, the central bank governor, said the ruling would take effect as scheduled, and warned that those who failed to meet the target would face penalties.
"According to the central bank's standard operating procedures the (failed) banks will be subject to intensive supervision, which could be followed by more serious surveillance," Sjahril was quoted as saying by detik.com.
This "more serious surveillance" he was referring to would include placing central bank staff at the concerned bank.
The ruling originally was to be put into effect by the end of this year, but the central bank recently delayed it by six months, citing in part the economic impact of the Bali bombing.
The decision drew immediate criticism, saying the six-month delay was insufficient for the banking sector, which is still feeling the pinch of the unfavorable economic situation in the country.
The Indonesian Bank Restructuring Agency (IBRA) has joined in the chorus of criticism over the central bank's decision to enforce the June 2003 deadline.
IBRA deputy chairman for bank restructuring, I Nyoman Sender, said the 5 percent level would be hard to achieve for any local bank, especially those under the agency's supervision.
IBRA is currently supervising five banks back to financial health. The five are Bank Danamon, Bank Niaga, Bank Permata, Bank Internasional Indonesia (BII) and Bank Lippo.
"Of all of them, perhaps only Danamon, whose NPL ratio is already below 5 percent, can meet the target. But what about the others? There is even a bank whose NPL is still about 20 percent," he said.
He suggested that the ruling be implemented gradually to give the banks time to make the necessary preparations.
The NPL ratio measures a bank's loans that have turned bad compared to its total loan exposure. Currently, the average NPL ratio for local banks is 10.4 percent.
The NPL can be lowered either by restructuring bad loans and turning them into performing loans, or by increasing the overall size of a bank's loan portfolio.
The most common practice, however, is to set aside provisions drawn from a bank's profits.
A high ratio of nonperforming loans will weigh on a bank's capital adequacy ratio (CAR), which compares a bank's capital to its risk-weighted assets.
CAR is a measure used to gauge a bank's financial health.