Indonesian banks to take over debtor property assets

JAKARTA (JP): Indonesian banks will soon become the reluctant owners of trillions of rupiah worth of property assets, as defaulting borrowers sidestep their obligations and forego their ownership responsibilities, a property consultant says.

According to the Bank Advisory experts from Jones Lang Wootton (JLW), the property sector has US$7 billion in outstanding debts to Indonesian banks, according to central bank data.

This figure accounts for 14 percent of all outstanding loans owed to the country's banks and excludes loans granted by foreign banks to local property projects.

The banks' exposure to property was not only from direct loans to property investors and developers, the company added. Many loans to other sectors had been granted using property as collateral.

Banks also own and lease a substantial number of properties for offices and branch activities, it said.

JLW said the banks would have to provide management expertise and working capital to maintain the value and income potential of the properties, which have already lost a significant proportion of their value since the loans were granted.

Banks typically do not have adequately skilled or experienced personnel to deal with the day-to-day issues of managing and rationalizing large property portfolios.

"Handling this type of task takes them away from their core business," it said.

However, the banks might benefit from selling the properties to foreign investors.

The director of JLW Asia and senior technical advisor in Procon Indah, Ian David, said foreign investors were very interested in taking over distressed bank's assets.

Procon Indah/JLW was recently appointed by several large foreign fund managers to invest up to US$350 million in property in Jakarta, David said.

"All that foreign investors are interested in at the moment is talking to the banks, not the property owners," he said in a statement issued yesterday.

The banks must aim to optimize the value of their assets over a reasonable period of time rather than simply dumping their properties onto the market, he added.

He said some properties could be sold off individually, but in most cases the bank would gain more by pursuing strategic partnerships and portfolio placements.

The main problem currently facing banks, however, was the legal position regarding foreclosure.

Until laws in this area were clarified and implemented, people would remain skeptical about the possibility of problems in this area to be resolved in a direct manner, he added. (das)