House extends approval deadline for banking bill

House extends approval deadline for banking bill

JAKARTA (JP): The House of Representatives (DPR) extended on
Thursday the deadline for approving the country's banking bill to
Oct. 16 from the earlier schedule of Sept. 29 to allow more time
to debate the government-proposed draft law.

The bill will amend the 1992 Banking Law, which is deemed
ineffective to restructuring the troubled banking sector and
particularly to clean up the sector's mounting bad assets.

"The time given to us is not enough because of the enlargement
of the substantial issues to be discussed," said I Gede Artjana,
head of House Commission VIII on banking, on the first day's
hearing on the bill with Minister of Finance Bambang Subianto and
Bank Indonesia Governor Sjahril Sabirin.

Bambang proposed the new banking bill to the House on Aug. 24,
and the commission will debate the amended clauses during the
remaining weeks before submitting the bill to a plenary session
ahead of the Oct. 16 deadline.

One of the important clauses is giving legal power to the
Indonesian Bank Restructuring Agency (IBRA) and its asset
management unit (AMU) to acquire the nonperforming loans (NPLs)
of the country's commercial banks and sell them.

The clause related to banking secrecy, which at present
protects names of both depositors and borrowers, will also be
amended to allow the monetary authority to unveil the identity of
large debtors.

IBRA chairman Glenn S. Yusuf said the legal power was needed
in order to be able to sell the collateral of the NPLs which is
mostly in the form of property located in the Jakarta golden
triangle prime business district.

He said on Wednesday that the NPLs would go on sale
immediately after the amended banking law becomes effective.

In the wake of tight domestic liquidity, the only potential
buyers for the bank assets are foreign investors.

Other crisis-hit nations like Thailand have already started
selling the bad assets to foreign investors, thereby leaving
Indonesia further behind in the chase for the limited pool of
overseas money due to the postponement of the banking bill's
approval.

Bambang estimated the NPLs would reach a massive 50 percent of
the more than Rp 600 trillion (US$50 billion) of banks'
outstanding loans, or more than 40 percent of gross domestic
product.

The new banking bill will also eliminate foreign ownership
restrictions of domestic commercial banks, which is currently
capped at 49 percent.

Banking transparency will also be improved by allowing the
banks' asset side of balance sheets to be disclosed to the
public.

"This is what scared most bankers because the allocation of
their credits can be made known to the public," a government
source said.

He said that local bankers had generally breached the legal
lending limit by channeling more than the allowed 20 percent
credit to affiliated parties.

He added that under the new banking regulation, the legal
lending limit would be raised to 30 percent. (rei)