BI to review ruling limiting IBRA asset sales

The Jakarta Post, Jakarta

Bank Indonesia said it would review a ruling that limits the amount of loans banks may purchase from the Indonesian Bank Restructuring Agency (IBRA), following complaints by banks and criticism that the ruling was impeding IBRA's much needed asset sales program.

"We have agreed to reconsider the ruling. In fact, we will meet IBRA on the 20th (of November) to discuss this," Bank Indonesia deputy governor Maman Sumantri told the House of Representatives' Commission IX on financial affairs during a hearing on Tuesday.

"We're always open to adjustments if it's for the benefit of everyone," he added.

Bank Indonesia issued the ruling in September to limit banks' exposure against a cache of bad debts IBRA was selling under its massive asset disposal program.

Maman's statement came in response to a Commission IX request to have the ruling reviewed.

"The ruling, which allows domestic banks to purchase IBRA assets only up to 50 percent of their core capital .... we consider as being disruptive to our economic recovery process," said Commission IX chairman Max Moein as he read out the results of Tuesday's hearing with the government.

Bank Indonesia Regulation No. 4/7/2002 on prudential banking principles and the purchase of IBRA loans, limits the amount of IBRA loans a bank may purchase to 50 percent of its core capital. The ruling took effect on Sept 27.

A bank's core capital consists mainly of its owners' funds and the bank's net profit. Coming under a bank's capital but outside its core capital, are debts and provisions set aside to hedge against the possibility of loans turning bad.

The Bank Indonesia ruling is meant to prevent the country's still fragile banking sector from amassing unrestructured loans from IBRA.

Set up in the wake of the 1997 economic crisis, IBRA is in charge of selling bad loans it took over from banks after the former have first been restructured.

In total, the agency controls some Rp 273 trillion (about US$29.83 billion) in unrestructured loans.

IBRA's mandate ends in 2004. However, the prolonged sluggish economy has slowed the agency's debt restructuring talks with the companies with which it holds the loans.

This year, IBRA launched a massive asset sale program aimed at disposing of bad loans faster without them first being restructured.

But under the Bank Indonesia ruling, IBRA's ability to find a market for its asset sale programs has shrunk considerably,

Some banks have reportedly been considering purchasing the loans via third parties, such as investment firms, to circumvent the central bank ruling.