Thu, 18 Sep 2003

BI to maintain limit on banks buying IBRA assets

The Jakarta Post, Jakarta

Bank Indonesia Governor Burhanuddin Abdullah said on Wednesday the central bank would not relax the current limits on banks acquiring assets held by the Indonesian Bank Restructuring Agency (IBRA).

He said the limits were necessary to help keep banks from falling into financial trouble.

"Bank Indonesia wants to make sure that banks are healthy," he said prior to a meeting with House of Representatives Commission IX for financial affairs.

Under Bank Indonesia ruling PBI No. 4/2002, banks are not allowed to purchase assets from IBRA of more than 50 percent of their core capital level.

On Tuesday, IBRA chairman Syafruddin Temenggung appealed to the central bank to relax the ruling to help the agency raise about Rp 18 trillion in cash this year.

IBRA took over bad loans from troubled banks in the wake of the late 1990s financial crisis. The agency is mandated to restructure and sell the loans to raise cash to help finance the state budget.

But because of various hurdles, the agency changed its strategy by selling nonrestructured loan assets, creating a greater financial risk for banks purchasing the loans.

IBRA took over more than Rp 200 trillion worth of bad loans from the banking sector, and it has sold most of the loans. About Rp 43 trillion worth of nonperforming loans have still been unsold.

The agency previously complained that since most of the major local banks had already reached their limit for purchasing the IBRA loans, selling the remaining loans would be difficult if the central bank did not relax the ruling.

But Burhanuddin insisted that many banks had yet to reach their limit, and the agency should focus their marketing efforts on these banks.

IBRA initially hoped to raise Rp 18 trillion in cash this year for the state budget, but after the government announced that this year's budget deficit would widen to 2 percent of gross domestic product from an earlier estimate of 1.8 percent of GDP, the agency has been pushed to raise more than Rp 21 trillion.

Burhanuddin said the central bank had been encouraging many banks that had not reached their limit to buy the IBRA loans. He said this could revive the banking sector's intermediary role, which has been drastically weakened since the financial crisis.