BI warns of rising bank NPL

Bank Indonesia said that gross non-performing loans (NPLs) in the country's banking sector had increased to 8.3 percent during the first quarter of this year.

Bank Indonesia Governor Burhanuddin Abdullah, however, said that net NPL had declined to 2.6 percent.

"BI has been observing an increase in NPL since February last year," he said, pointing out that the increase was contributed by both new loans and unrestructured loan assets acquired from the now-defunct Indonesian Bank Restructuring Agency (IBRA).

The central bank has set a 5 percent NPL limit for the banking sector to help ensure the health of the industry, which has just started to recover from the late 1990s financial crisis.

Burhanuddin also said that there had been a rising trend among depositors to switch their funds from bank time deposits to bonds and foreign exchange investment.

This was mainly caused by the sharp decline in time deposit interest rates, forcing depositors to seek alternative investments offering better returns.

According to the central bank, some Rp 15 trillion worth of funds had been switched from bank deposits into bonds during the first quarter of this year, and another Rp 7 trillion into forex investment.

Burhanuddin said the central bank is closely monitoring the situation to avoid a negative impact on the banking industry. -- JP