Govt to write off bad loans owed by SMEs

Rendi A. Witular, The Jakarta Post/Jakarta

The Ministry of Finance is preparing a government regulation that will enable state-owned banks to write off bad loans owed by small-and-medium enterprises (SMEs) in an effort to accelerate the recovery of their businesses, a government official said.

Director General of State Auction and Credit at the ministry Machfud Sidik said the government would wrap up the regulation within the first 100 days of the new government, with a possible disposal of the loan collateral assets to start early next year.

"The regulation will outline guidelines for the government in writing off the debts. There will be a strict criteria imposed on the facility in a bid to avoid misuse," said Machfud on Thursday.

Machfud explained that the write-off measure would only be eligible for individual debts of up to Rp 10 billion (about US$1.09 million), and the SME debtors could no longer service the debts despite an earlier discount facility from the government.

Machfud said the debts owed by the SMEs were part of the total bad loans at state-owned banks that amount to Rp 30 trillion. However, Machfud refused to disclose the amount of the debt owed by the SMEs.

The bad loans are mostly a legacy of the Asian financial crisis in late 1997 that have left thousands of large and small corporations bankrupt or in serious trouble.

Based on existing regulations, the Minister of Finance is authorized to approve the disposal of bad loans of less than Rp 10 billion per entity.

As for loans worth between Rp 11 billion and Rp 100 billion, the authority to dispose of them is in the hands of the President. Disposal of loans above Rp 100 billion should be approved both by the President and the House of Representatives.

Machfud said after the regulation had been issued, state-owned banks should propose the amount of the bad loans owed by the SMEs that were eligible for the write-off measure.

The collateral for the bad loans will be taken over by the Directorate General of State Auction and Credit for an open auction to the public.

Machfud said the government expected a recovery rate of up to 50 percent from the sale of the assets.