BI defends NPL ruling despite criticism
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.