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)