'Incestuous' lending occurs in some RI banks: Analyst
'Incestuous' lending occurs in some RI banks: Analyst
JAKARTA (JP): A banking analyst from the New York-based rating agency Thomson Bankwatch Inc. says that Indonesia's private commercial banks, mostly controlled by diversified business groups, may run into credit-problems due to rampant "incestuous loans".
"There are potential problems among the country's private commercial banks because a significant number of them have been extending loans to businesses controlled by the banks' shareholders," Phillipe F. Delhaise, the president of the Asian division of the rating agency, told The Jakarta Post yesterday.
"In the case of such incestuous loans, we can never be sure whether those loans have been extended under proper credit- analysis," he said during a break in a workshop evaluation on credit risk analysis held by Thomson Bankwatch here.
Thomson has rated the Indonesian banking system as a whole and has individually scrutinized 39 of the country's private and state banks.
After the government launched a major banking reform in 1988, the number of private commercial banks in Indonesia, one of the fastest growing economies in the world, has more than doubled to 240.
Some banking analysts, including Kwik Gian Gie and Laksamana Sukardi, however, fear that most of these new commercial banks lack professionalism and prudence because, in frequent cases, they are controlled by diversified business groups without prior banking experience.
Analysts often cite the cases of Bank Duta and Bank Summa, which collapsed because of poor internal control and excessive interference by dominant shareholders.
Bank Duta, owned by the Supersemar, Dakap and Dharmais foundations, suffered US$419.63 million in losses from foreign exchange trading in 1990.
Bank Summa, which was owned by the Soeryadjaya family, was closed down in 1992 because of dubious bad loans of around $500 million.
Delhaise yesterday stated his agreement with the analysis on the potential danger of such "incestuous loans".
He declined, however, to elaborate on the exact magnitude of these potential problems and to identify the supposedly troubled private banks.
"What I can say is only that private commercial banks whose ownerships are not dominated by one single group, but evenly spread between a range of shareholders, will have less problems caused by these incestuous loans," Delhaise said.
"In some cases, some smaller banks are in better shape than the bigger ones in relation to these problems," he said.
Bad debts
Bank Indonesia, the central bank, recently announced that the level of bad debts in the country's commercial banks rose to 3.97 percent of their outstanding credits, standing at about $85.88 billion as of January, up from 3.88 percent as of September 1994.
The level of bad debts in state banks alone, which control around 50 percent of the lending market, reached a higher level -- 5.8 percent or about Rp 6.1 trillion -- as of January.
Soedradjad Djiwandono, the governor of Bank Indonesia, dismissed any suggestion that bad debts were adversely affecting the banking industry, saying that the ratio remained within tolerable limits.
Delhaise also said yesterday that the international financial community believed that the Indonesian government would always support state banks, regardless of their loan problems.
"We are confident that, because of guaranteed government support, state commercial banks will still have sound credit worthiness even though they have negative equities," he said.
"Of course, such support will not be there for the private banks. If they have negative equity, they can really go under," he said. (hdj)