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)