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)