BI to issue new bank restructuring ruling

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Wednesday that the central bank was designing a new policy aimed at accelerating the restructuring process of the country's ailing banking sector. Bank Indonesia supervises the country's banking industry.

Sjahril said that the new ruling would include measures to accelerate the transfer of bad loans from recapitalized banks to the Indonesian Bank Restructuring Agency.

"The new ruling is expected to be completed before the end of this month," he told a small group of reporters.

Sjahril said that the new ruling would allow the central bank to surrender a healthy bank to IBRA to legally enable the latter to seize the category five loans from a recapitalized bank.

Sjahril said that the new ruling was not merely designed to facilitate the transfer of the remaining bad loans of the giant state-owned Bank Mandiri to the agency, but other qualified banks as well.

Bank Mandiri which was recapitalized by the government last year to boost its capital adequacy ratio (CAR) level to 12.44 percent has not transferred its remaining Rp 16.5 trillion in bad loans to IBRA.

But according to the existing ruling, a bank can legally transfer its bad loans if the debtors agree or if the bank is under the supervision of IBRA.

The ruling also stipulates, that Bank Indonesia can only place a bank under IBRA supervision if its CAR level was below the 4 percent minimum requirement.

The transfer of all bad loans of a recapitalized bank is central to the restructuring of the bank as it will clean the balance sheet.

The government has stipulated that banks joining the recapitalization program must transfer all of their bad loans to IBRA.

It's not clear why Bank Mandiri has not transferred all of its bad loans. Last year the bank transferred some Rp 76 trillion in category five loans to the agency.

The government is scheduled to recapitalize more banks this year including the state-owned Bank Rakyat Indonesia (rei).