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)