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)