Huge losses may dog banks in next 2 years: Analysts
Huge losses may dog banks in next 2 years: Analysts
JAKARTA (JP): Many of the nation's more than 200 commercial
banks, beset by increasing costs of funds and bad debts, are
likely to share a dubious bond in reporting great losses for 1998
and 1999, banking analysts warn.
Rijanto Sastroatmodjo said at a seminar here yesterday that
bad debts were already on the rise due to increasing interest
rates and the prolonged economic woes.
This was compounded by the requirement from Bank Indonesia,
the central bank, for banks to set aside even larger provision
funds to back up problem loans.
Bank Indonesia's recent banking prudential ruling raised
problem loan provisions to 50 percent for less collectible loans,
75 percent for doubtful loans and 100 percent for nonperforming
loans.
"These large bad debts and large provisions for problem loans
would gnaw at income and eventually capitals of even currently
healthy banks," Rijanto told the seminar organized by the
Indonesian Forum.
"Because of these losses, I expect many banks would not dare
publish their financial statements this year and next year."
Financial expert Tjiptono Darmadji said many corporations
could not service their debts because they had cash-flow
problems.
"I often suggest to companies asking my advice that they
declare debt default because they are basically unable to service
their debts anymore."
He suggested that owners of debt-plagued companies sell them
to any interested parties, including foreign investors.
"I notice there are already some foreign investors interested
in buying indebted companies, of course at very cheap prices" he
said.
Otherwise, he added, many companies would never be able to
repay their debts to banks, which would further exacerbate the
problems of the beleaguered banking industry.
When most banks reported losses, Rijanto said, Bank Indonesia
would be forced to restructure its short-term loans to some
problem banks, or even convert them into bonds or equity.
He said Bank Indonesia had injected about Rp 55 trillion
(US$6.8 billion) into cash-strapped banks, most of which are now
under the supervision of the Indonesian Bank Restructuring
Agency.
"All of this Rp 55 trillion are short-term funds, which have
to be paid back in one year at most. But, definitely, banks would
not be able to pay them back in one year.
"As illustration, all domestic banks mobilized a total of Rp
22 trillion from the public for the whole of 1997, or about half
of the total liquidity credits extended by Bank Indonesia," he
said.
Due to their dire need for fresh liquidity, Rijanto predicted
the banks would continue to offer high interest rates to attract
public funds to cover their short-term obligations.
Even though their balance sheets were in trouble, banks would
be forced to raise funds to meet the minimum capital of Rp 1
trillion at the end of this year.
He said the new regulation on minimum capital would encourage
banks to invite foreign partners to raise capital, merge with
other banks, voluntarily downgrade their status to rural or
secondary banks or pursue self-liquidation. (rid)