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)