Japanese banks aid Indonesia, but ensure of business outlook
Japanese banks aid Indonesia, but ensure of business outlook
TOKYO (Reuters): Japanese banks have moved to support Indonesia's trade financing and boost capital in their Indonesian subsidiaries, but they are still far from optimistic about business prospects there.
Bank of Tokyo-Mitsubishi Ltd (BTM) said yesterday it had agreed with the central bank, Bank Indonesia, to guarantee letters of credit issued by 28 major Indonesian banks.
Under the agreement, BTM and Bank Indonesia will guarantee letters of credit issued by 22 private banks and six state-owned banks, a BTM spokesman said.
Indonesia's international trade has been bogged down for several months following refusals by most overseas banks to accept Indonesian letters of credit (L/C) due to plunging confidence in the crisis-hit country.
This hurt its exporters, which depend largely on imported raw materials for production.
Some foreign banks have now started to accept local L/Cs after an international commitment to provide guarantee facilities for Indonesia's imports.
The Export-Import Bank of Japan, the Singapore government, and the U.S. Export-Import Bank have also offered help to guarantee the country's L/Cs.
Meanwhile, major Japanese commercial banks are considering raising capital for Indonesian subsidiaries jointly set up with local companies there, banking sources in Tokyo said.
But the amount of capital to be raised and the timing have yet to be decided, they said.
"We will be raising capital. But given the stalling debt negotiations between foreign creditor banks and Indonesian companies and lingering uncertainty over the (President) Habibie administration, a final decision cannot be made," said a Japanese bank official, who declined to be named.
Analysts said the possible capital replenishment by Japanese banks was not out of growing optimism about Jakarta but due to sheer technical necessity.
Banks operating in Indonesia are required to set aside loan loss reserves of up to 100 percent of the original value of the loans to cover possible losses.
"If banks were to set aside such reserves, it would eat up part of the capital of their Indonesian banking subsidiaries, raising the need for replenishment of capital in the near future," said a senior analyst at a Japanese think tank.
If banks are not being paid interest on loans to Indonesian firms at present, they are likely to fall into the category of problem loans that require them to put up 50 to 100 percent loan loss reserves when they close their books at the end the first half of the business year on Sept. 30, he said.
BTM, which has the largest exposure, said on Monday its outstanding loans to Indonesia totaled 450 billion yen, of which 47 billion yen was subject to loan loss reserves.
The Indonesian government has called for banks operating there to raise their minimum capital to Rp 250 billion.
The maximum capitalization among Indonesian subsidiaries of Japanese banks is currently Rp 150 billion.
The banking sources said the amount of reserves that are needed cannot be estimated at a time when talks over the debt of Indonesian companies have stalled.
Talks on how to reschedule Indonesia's $80 billion private sector debt, originally set for May 26 in Frankfurt, have been postponed until June 1 due to the turmoil in the nation leading up to the resignation of Soeharto from the presidency last week.