BI to review ruling limiting IBRA asset sales
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.