Harsher measures against unruly banks welcomed

Harsher measures against unruly banks welcomed

JAKARTA (JP): Legislators and business analysts supported Bank
Indonesia's plan to impose stricter measures against banks
violating the Legal Lending Limit regulation.

Usman Erwulan of Commission VII of the House of
Representatives (DPR) said yesterday that it was high time now
for the central bank to take legal action against banks not
complying with lending limit regulations.

"It is time to give undisciplined banks a lesson," he said,
commenting on the central bank's plan to take a harsher attitude
in dealing with banks violating the lending limit regulation.

Faisal Urai, another member of Commission VII, which is in
charge of trade, finance and banking, said that the violation of
the legal lending limit regulation caused an unfair distribution
of bank credits in Indonesia.

"Small firms, especially those engaged in the agricultural
sector, have difficulty raising loans, because most of the
available credits go to bank owners or their own companies," he
said.

Bank Indonesia Governor J. Soedradjad Djiwandono said last
week that the number of banks not complying with the lending
limit regulation had increased last year.

Soedradjad did not give the number of the banks violating the
regulation but he said that it had reached an alarming level.

In his speech at an annual banking meeting on Friday night,
Soedradjad said that the central bank will continue to monitor
this development closely, and that it will not hesitate to take
legal action.

The central bank issued a ruling in May, 1993, limiting bank
loans going to a group of non-affiliated companies to a maximum
of 20 percent of the bank's capital. The lending to affiliated
companies or firms within the same business group is limited to a
maximum of 10 percent of the capital.

Banks were given five years to adjust the loans provided,
before the issuance of the ruling to the new Legal Lending Limit
regulation. Loans to a group of non-affiliated companies, for
example, should have been reduced to 50 percent of the capital by
last December, to 35 percent by March 1997 and to 20 percent by
the end of 1997.

Lendings to affiliated companies or firms of the same group
provided before May 1993 should be also reduced to 12.5 percent
of the capital by last December, and to 10 percent by March 1997.

However, many banks have not complied with lending limit
regulations, even though they have been given a significant
adjustment period.

Economist Christianto Wibisono said that the central bank had
to be realistic in imposing its lending limit regulation, given
the fact that not all credits given to affiliated companies are
of dubious quality.

He said that the central bank should, for example, be more
selective in enforcing lending limits.

"It will be difficult to force banks to give most of their
loans to non-group companies if they feel giving loans to
companies in the same business group will be safer," Christianto,
the director of the Indonesian Business Data Center told The
Jakarta Post.

In many cases, Christianto said, providing loans to non-
affiliated companies is much risker.

Unlike Christianto, other analysts such as Rizal Ramli,
Priasmoro Prawiroardjo and Maryanto Danusaputro warmly welcomed
the central bank's warning.

Rizal said that the central bank's disciplinary measure is
needed so that banks will not be used by their owners for
personal interests.

"Such measures are important, and serve to improve the
professionalism of the country's banking industry," Rizal of the
Econit advisory agency.

Maryanto, also a banking analyst, went further, saying that
legal action is needed because the central bank's existing
measure is no longer effective.

Priasmoro, an executive at a foreign joint venture bank, also
supported the change.

He, however, appealed to the central bank to try persuasion
first before taking legal action against banks. (hen)