Decree on SME restructuring a risk to banks
A'an Suryana, The Jakarta Post, Semarang
The plan to issue a presidential decree on the restructuring of bad debts owed by small and medium enterprises (SMEs) could create serious problems for banks, according to experts.
They said that if the government forced banks to offer hefty discounts and lenient restructuring terms to bad debtors, SMEs that had been diligent in repaying their loans would also ask for similar facilities, which in turn could undermine the financial condition of the banks.
"Good SME customers will feel that they are being treated unfairly by the government. They struggle to pay off their loans, but at the same time delinquent SMEs may receive reductions," Hari Rahardjo Slamet, vice president for credit restructuring at state Bank Mandiri, told participants at a media gathering on Wednesday in Semarang, Central Java.
Earlier reports said that President Megawati Soekarnoputri was close to signing the decree, which has been revised dozens of times due to difficulties in reconciling interests among consenting parties.
Initially, the Office of the State Minister of Cooperatives and Small and Medium Enterprises proposed that SME debtors be offered a 50 percent discount for a one-time cash settlement and 40 percent if they paid off their loans by installment within one year.
The proposal was supported by Vice President Hamzah Haz. The policy was expected to resolve the Rp 39.6 trillion in outstanding bad debts owed by SMEs.
But the plan was strongly protested by bankers, who lobbied the Office of the Coordinating Minister for the Economy to reject the proposal.
After nearly a year of wrangling, government sources say the final draft of the presidential decree would not specify the size of discount to be given to indebted SMEs, and it would be up to individual banks to design the restructuring terms for the debtors. This seems to be the result of the successful lobbying by the banks.
According to Hari, even before details of the presidential decree had been made public, some good SME debtors had already started to ask for special restructuring terms for their debts.
Meanwhile, Frans Mardi Hartanto, a former commissioner for Bank Danamon, concurred with Hari, saying that overly lenient restructuring terms would pose a serious threat to banks' balance sheets.
"Such a policy would create huge financial burdens for the banks," he said, adding that a deterioration in the financial condition of banks would jeopardize the government's costly bank bailout program.
"The banking sector does not need a general policy ... Each SME needs different treatment. Let the banks manage this by themselves," he said.