Executive accuses local private banks of cheating
Executive accuses local private banks of cheating
JAKARTA (JP): Some of the city's local private banks often transfer their bad loans into current loans to secure an improved performance through "cheating" practices instead of restructuring the loans, an executive of a leading bank rating agency said.
The president of Thomson Bankwatch Asia, Philippe F. Delhaise, said that to reduce the figures of their bad loans, some banks just lend more to the same borrowers or other companies belonging to the borrowers so that they can service the bad debts.
"It is not restructuring but cheating, and it is done a lot in Indonesia," Delhaise told The Jakarta Post in a break at a two- day seminar on Asian Banking Risk Analysis in the city yesterday.
The seminar was organized by the Thomson Bankwatch Asia, an affiliate of the New York-based Thomson Bankwatch which claims to be the world's largest bank rating agency, with the number of its clients reaching more than 1,000 financial institutions in over 50 countries. It currently rates 15 leading Indonesian banks.
When asked, Delhaise said that there are several ways to control cheating practices. However, he declined to elaborate the ways. "It is very much in the hand of the management."
He predicted that local private banks which have enjoyed a very rapid annual growth rate of over 50 percent during the past several years may run into credit problems in the next two to three years.
"It sounds difficult for any bank in the world to grow by 50 percent or 60 percent a year and do the right things," Delhaise said.
"In Jakarta, many banks grow by 50 percent for several years. It is bound to create problems in how the banks are run, not to mention the problems linked to the quality of credits," he continued.
According to Bank Indonesia, the central bank, bad loans at local private commercial banks reached Rp 1.67 trillion (US$725 million at the current rate) as of last June, or 17 percent of the total bad loans of the country's commercial banks. These stood at Rp 9.97 trillion.
The largest portion of bad loans occurred in the seven state- owned banks with Rp 7.32 trillion of combined bad loans, or 73.4 percent of the total bad loans.
Handling
Delhaise also expressed his concern over a slow handling of the huge bad loans at state banks. However, he did not blame Bank Indonesia for it.
"Bank Indonesia is prevented from doing a good job because of the circumstances in the country... It's a pity because the central bank is not given more help to solve the problems, especially the problems of bad loans at state banks," he said.
While some bad debts clearly made to unhealthy companies, much non-servicing of debts may be caused by unwillingness rather than inability to pay, he said.
Delhaise suggested that the government should be tougher in forcing the borrowers, who are able but unwilling to pay their debts, to fulfill their obligations to state banks.
He also called on the government to put an end to rampant "incestuous" credits extended by a number of private commercial banks, especially those controlled by diversified business groups.
He acknowledged that the central bank had issued a ruling for the country's commercial banks in extending loans to businesses affiliated to them. However, a number of banks just disregard the rules.
According to Bank Indonesia's ruling on legal lending limits, credits extended to companies or individuals with special relationships with a bank may not exceed 12.5 percent of the bank's capital.
"It is very very dangerous. In case there is a downturn in the economy or even a slowdown, there is a great potential to turn those credits into bad debts," he said. (rid)