Experts doubt IBRA's ability to recover Rp 100t in bad debts

JAKARTA (JP): Economists and financial observers have doubted the ability of the Indonesian Bank Restructuring Agency (IBRA) to recover over Rp 100 trillion (about US$11.5 billion) in bad loans taken over by the central bank from the country's seven state banks.

Economist Didik J. Rachbini said on Saturday IBRA would have difficulty recovering the bad debts not only because of the financial difficulties of the debtors, but also because of the poor quality of the loan collateral.

He believed that the value of the assets used by debtors to support their loans was substantially lower than the value of the outstanding debts.

The surprisingly low value of the assets, mostly land, office buildings and real estate, was not merely caused by falling prices but was more due to the initial exaggerated estimates of the value of the assets, he said.

"Borrowers might have marked up the value of their collateral in order to get bigger bank loans," he told The Jakarta Post.

IBRA announced on Thursday it had assumed over Rp 100 trillion in nonperforming loans provided by the seven state banks. The loans were taken out by some 1,200 debtors from Bank Bumi Daya, Bank Dagang Negara, Bank Pembangunan Indonesia, Bank Tabungan Negara, Bank Ekspor Impor Indonesia, Bank Rakyat Indonesia, and Bank Negara Indonesia.

The bad loans, nearly half of the banks' outstanding credits, will be handled by the agency's asset management unit.

IBRA deputy chairman Eko S. Budianto said the nonperforming loans would be removed from the loan portfolios of the seven state banks so the banks could concentrate their resources on managing remaining productive assets.

However, he added that the transfer of the bad assets to IBRA would not automatically lead to the liquidation of the corporate debtors.

"Debtors who show good faith and still have good business prospects will be helped to continue their operations through credit restructuring," he said.

He said IBRA would attempt to collect the debts, saying the agency would "vigorously pursue" borrowers.

Senior banker I. Nyoman Moena doubted the relatively new agency with no debt restructuring experience could effectively handle the restructuring task.

"IBRA is currently doing the difficult task of restructuring the country's banks. The new workload of restructuring the debts of seven state banks, in the amount of Rp 100 trillion, would be a great burden for IBRA," he told the Post.

He suggested that IBRA recruit experienced professionals to bolster its debt restructuring team.

Nyoman insisted that if criminal conduct is found in the granting of the loans, prompt measures need to be taken (to prosecute) according to the existing laws.

"Basically, a debtor company needs to be rescued if possible. If not, liquidation is unavoidable," he added.

Bank Indonesia Governor Sjahril Sabirin told the press last week that the government would prioritize out-of-court debt settlements, but added that bankruptcy proceedings would be taken if necessary.

Didik, however, doubted that the country's commercial court could produce a satisfactory decision.

"The commercial court is relatively new, and the judges are mostly nervous," he said.

Many have criticized the commercial court for its rulings allowing several debtors off the hook.

Didik also urged that debtors who could be proven to have unlawfully acquired their loans to be punished under criminal law.

The large number of bad debts have pushed the state banks into technical bankruptcy, but they remain in operation because of the government's financial support and guarantees.

Recent press reports said a large number of the biggest drawers of state bank loans are politically connected businessmen, including the children and friends of former president Soeharto.

Reports said that Soeharto's youngest son, Hutomo Mandala Putra, owed a total of $400 million and Rp 1.7 trillion to Bank Bumi Daya, Bank Dagang Negara, Bank Ekspor Impor Indonesia, and Bank Pembangunan Indonesia.

Soeharto's second son, Bambang Trihatmodjo, and his associates, reportedly owe the four banks $2.7 billion and Rp 1.9 trillion between them.

Businessman Prajogo Pangestu, one of Soeharto's cronies, was reported to owe Rp 2.6 trillion to the banks. (rei/02)