BI to tighten private borrowing

BI to tighten private borrowing

JAKARTA (JP): Bank Indonesia will improve its monitoring of
the inflow of foreign commercial loans to the country's non-bank
borrowers, according to central bank governor J. Soedradjad
Djiwandono yesterday.

He said the measure is essential to ensure better checks on
the foreign commercial debts owed not only by banks but also by
non-bank borrowers and to ensure that short-term borrowing is
used for productive activities.

Speaking at a hearing of the Budgetary Commission of the House
of Representatives, Soedradjad said that the improved monitoring
system would also tighten the central bank's scrutiny on the
issuance of commercial papers by multi-finance companies.

Tightening the control on the issuance of commercial papers by
multi-finance companies is an important priority, given the fact
that many of the loans are often used by banks to break the
banking regulations.

"Most banks abide by the offshore borrowing restrictions," He
said. "But in some cases they often ask their affiliated multi-
finance companies to raise offshore borrowing for them through
the issuance of commercial papers or a loan syndication," he
said.

Soedradjad said the planned improvement in the monitoring
system will not affect the existing ceilings of foreign
commercial loans imposed on Indonesian borrowers.

Unlike, state-owned banks and companies and private banks,
private companies do not require the government's approval to
raise foreign loans but they do have to report their borrowing to
the central bank.

According to Bank Indonesia, the outstanding offshore
commercial loans reached over US$30 billion as of last June,
nearly half of the government's concessional loans of $64
billion.

At yesterday's hearing, the House members not only questioned
Bank Indonesia's policy of curbing the commercial loans but also
urged the central bank to strengthen its law enforcement on banks
not complying with its regulations as well as in dealing with bad
debts.

Hamzah Haz, of the United Development Party's faction at the
House, said that without imposing stricter punishments, the
central bank will face difficulties in bringing defiant banks
back on to the right track.

"If it is necessary, the central bank should use the banking
laws to punish delinquent banks," he said.

Soewarno, of the Armed Forces' faction, also supported
Hamzah's proposal, saying that enforcing article 50 of the
banking law will be the best alternative if bankers still break
the legal lending limit regulations.

Article 50 of the banking law imposes a maximum jail term of
six years and a maximum fine of Rp 6 billion on bank owners or
other affiliated parties, who break the banking regulations.

Soedradjad, however, said that enforcing article 50 of the
banking law is not easy because not all banking offenses are
categorized as crimes.

Banks breaking the lending limit ruling or other regulations
will only be fined or given other administrative punishments such
as the downgrading of their ratings, he said.

However, if banks commit very serious offenses such as
manipulating the system, the central bank will not hesitate to
take them to court, Soedradjad said.

He said that 70 of the 240 existing banks did not fully adopt
the Legal Lending Limit regulations. Another 18 did not comply
with the Loan to Deposit Ratio requirement and another 21 banks
failed to abide by the minimum Capital Adequacy Ratio
requirement.

On bad debt problems, the central bank denied an allegation
that the increase in the volume of bad debts in the country was
due to its hands-off policy on the issue.

"The allegation is not true. We have made every effort to deal
with the bad debt problem," he said. "So don't expect us to solve
the problem over night. It takes time," he added.

Bad debts in the country's banking industry rose to Rp 10.46
trillion as of last November from Rp 9.97 trillion as of last
June. The bad debts at the seven state banks alone rose by around
Rp 55 billion in the same period to Rp 7.86 trillion. (hen)