Economic analysts hail new loan writeoff plan
Economic analysts hail new loan writeoff plan
JAKARTA (JP): The government's plan encouraging banks to
writeoff problem loans is an appropriate way to deal with bad
debts says analysts and economists.
Christianto Wibisono, director of the Indonesian Business Data
Center, said yesterday that banks have no choice but to remove
bad loans if they want to improve their financial performances.
"Loan writeoff is the best alternative but banks, as a
consequence, should take legal action against those defaulting on
credits," he told The Jakarta Post.
Kwik Kian Gie, an outspoken critic of the Indonesian economy,
has a similar view of Bank Indonesia's plan to facilitate loan
writeoffs in the banking industry.
He said keeping bad loans on financial books would not only
worsen banks' financial performances but would also mislead the
public about their financial strengths.
Kwik said the central bank's plan to encourage writeoffs
should have been done several years ago.
A number of commercial banks, which used to treat removal of
bad debts from their balance sheets as strictly confidential,
have in the last two weeks announced their writeoffs.
State-owned Bank Rakyat Indonesia, for example, said last
week it had written off over Rp 1 trillion (US$435 million) in
bad loans this year.
Two private companies, Bank Niaga and Panin Bank, also
announced similar measures to improve their financial soundness.
Bank Niaga wrote off bad loans worth Rp 34.48 billion in 1995 and
Panin Bank wrote off bad loans worth Rp 38.5 billion.
State banks
According to Kwik, the country's seven state-owned banks,
whose bad loans exceeded 5 percent of their total credits in
1993, have so far removed Rp 4.2 trillion in bad loans from their
balance sheets.
Kwik said the loans written off by the seven state banks were
only a fraction of their bad loans. The state banks are Bank
Rakyat Indonesia, Bank Pembangunan Indonesia (Bapindo), Bank Bumi
Daya, Bank Tabungan Negara, Bank Dagang Negara, Bank Negara
Indonesia and Bank Ekspor Impor Indonesia.
"All bad loans in state banks should be removed and, if
necessary, the government should use the state budget to finance
the writeoff," he said.
Writeoff is an accounting term for removing bad loans from a
company's books and charging them to its loan loss reserve
account.
Like Christianto, Kwik said the writeoffs should be followed
by legal action, such as suing borrowers who default.
"Taking defaulting borrowers to court is necessary to recoup
unpaid credits," Kwik said while complaining that most writeoffs
by state banks were not followed by legal action.
State banks require an approval from the Ministry of Finance
and the Development Finance Comptroller (BPKP) to writeoff loans
while private banks need shareholders' approval.
According to the central bank, commercial banks' (which
include state and private banks) total non-performing loans grew
to Rp 30.39 trillion in April this year from Rp 27.88 trillion in
December 1995, and from Rp 26.16 trillion in December 1994. Their
ratios against outstanding loans, however, declined to 10.75
percent in April 1996 from 10.41 percent last December, and from
12.05 percent in December 1994.
Bad loans at the seven state banks declined to Rp 6.38
trillion, or 2.2 percent of outstanding loans, in April this year
from Rp 6.39 trillion (2.39 percent of total lending) last
December. In December 1994 their bad loans totaled Rp 6.18
trillion, or 2.85 percent of their outstanding loans.
Private banks' bad loans were 0.55 percent of their
outstanding loans in April 1996, 0.54 percent in December 1995
and 0.75 percent in December 1994. (hen)