IBRA returns bad loans to state bank management

IBRA returns bad loans to state bank management

JAKARTA (JP): Apparently in a bid to maximize debt recovery,
the government has decided to return the management of some non-
performing loans (NPLs) to the hands of the country's seven state
banks, according to deputy chairman of the Indonesian Bank
Restructuring Agency (IBRA) Eko S. Budianto.

Eko said on Friday that under the new loan workout strategy,
individual loans of less than Rp 25 billion (US$3.1 million)
would be managed by the state banks.

"But IBRA will still oversee the management of the loans," he
told reporters on the sidelines of a recapitalization agreement
meeting with the country's provincial development banks.

He said NPLs falling under this category amounted to more than
Rp 4 trillion at the four state banks being merged into the so-
called Bank Mandiri.

He did not specify the amount for the remaining three state
banks.

IBRA initially planned to manage individual loans of more than
Rp 5 billion, while the handling of loans smaller than Rp 5
billion would be given to independent parties.

Eko also did not explain how the new strategy would have an
impact on efforts to restructure the bad loans owed by the
country's 20 largest debtors.

A credible restructuring program for the NPLs is essential for
encouraging positive developments in the country's macroeconomic
indicators.

IBRA has assumed over Rp 100 trillion in NPLs from the seven
state banks, of which more than Rp 60 trillion is thought to be
owed by 20 of the country's largest debtors, mostly politically
well-connected businesspeople.

Eko said at a recent press conference that one businessman
might own or control several indebted companies, which when
combined could amount to a huge debt.

Efforts to restructure NPLs owed by the 20 largest debtors
have been a key element of the reform program of the government
and the International Monetary Fund to encourage the recovery of
the real sector and the banking sector.

But the progress is sluggish as IBRA has to pass through
political minefields set up by the well-connected businessmen.

Several government bankers earlier insisted that the
management of the NPLs should be the responsibility of the state
banks, arguing that they "know their customers well".

The government is expected to issue a new letter of intent to
the IMF containing detailed plans for the restructuring of the 20
largest debts.

Eko said that a debt restructuring agreement is expected to be
reached with the 20 largest debtors in August.

He added that debtors failing to enter into restructuring
agreements might risk their names being made public.

The government would also liquidate the assets of the bad
debtors failing to reach restructuring agreements. But the
collateral, according to analysts, is far from enough to cover
the loans.

Eko said that the restructuring plans would not involve any
principal or interest cuts.

The government has resisted public pressure to disclose the
names of the 20 largest debtors, saying such an action could
discourage them from entering restructuring agreements.

But Minister of Finance Bambang Subianto promised that the
government would not allow any moral risks in the restructuring
process, pointing out that the government would take legal action
against bankers and debtors who had caused the bad loans by
violating banking regulations. (rei)