BI eases rulings to boost bank lending

BI eases rulings to boost bank lending

JAKARTA (JP): Bank Indonesia has temporarily relaxed three
bank rulings in a bid to encourage banks to lend more money to
the real sector, and to help accelerate the corporate
restructuring process.

Bank Indonesia deputy governor Subarjo Joyosumarto said on
Wednesday that the calculation of capital adequacy ratio (CAR)
had been improved by taking into account a bank's loan loss
reserve requirement into risk-weighted assets.

"Banks with a larger amount of nonperforming loans will enjoy
a greater increase in their CAR level of up to 2 to 3 percent
with the new method. This will give them more room to channel
their money," Subarjo told a news conference.

He said the new method of calculating risk-weighted assets was
still in line with the requirement set by the Bank for
International Settlement.

He said that many banks had been fearful of lending money lest
their CAR levels drop to below the current minimum 4 percent
requirement.

Indonesian banks must achieve a minimum CAR level of 8 percent
by the end of 2001.

CAR is the ratio between capital and risk-weighted assets.
The higher the CAR level, the sounder the bank.

Subarjo said that so far only about Rp 270 trillion out of the
Rp 800 trillion in time deposits at commercial banks had been
channeled to the real sector.

But Subarjo said that the improvement in the calculation of
CAR would not necessarily prompt a surge in bank lending because
there were still other factors involved, including progress with
corporate restructuring and the political situation.

He said that some banks still had a "psychological barrier" in
lending to companies because of past bad loans.

"Banks are also reluctant to lend money to new companies
because they don't have track record yet," he said.

Subarjo said the central bank had relaxed the two rulings to
help accelerate the country's debt and corporate restructuring
program.

He said that Bank Indonesia had given banks until May 2001 to
settle their legal lending limit problems.

Under the initial ruling, banks were required to settle their
legal lending limit problems by October 1999.

Subarjo said that the more relaxed ruling on the legal lending
limit would also encourage banks to lend more money to the real
sector.

But he said it would only apply to banks whose legal lending
limit problem was caused by the sharp plunge in the rupiah's
exchange rate or due to a drop in their CARs during the economic
crisis.

He said the new ruling would not apply to banks which had
already violated the 20 percent legal lending limit when they
channeled new money.

Subarjo also said that to encourage more debt restructuring
deals, settlement of legal lending limit problems would be
extended to December 2002 for nonperforming loans which were
being restructured through the facilitation of the Jakarta
Initiative Task Force.

Subarjo said that in a bid to accelerate corporate
restructuring, the central bank had allowed banks a longer period
to divest of their equity participation in indebted companies.

He said that banks which had reached a restructuring deal with
their debtors, through a debt-to-equity swap mechanism under the
initial ruling, must divest of their equity participation after
more than five years and if the indebted companies had enjoyed
profits for two consecutive years.

He said that under the relaxed ruling, divestment must be made
after more than five years and if the indebted companies had
enjoyed a cumulative profit. He did not elaborate.

But Erwin Riyanto of Bank Indonesia said that under the
relaxed ruling, the banks were given a longer period to retain
their investment, thus avoiding making a fire sale in an economy
which had yet to recover.

Subarjo said that the new rulings were only temporary and
would be revised once the economy had recovered.

Asked about the current condition of the country's banking
sector, Subarjo said that based on March data there were 112
banks with CARs of more than 8 percent, 10 banks with CARs
between 4 percent and 8 percent, and 39 banks with CARs less than
4 percent.

He also said that seven banks had breached the legal lending
limit. (rei)