Law, problem loans hamper state banks

Law, problem loans hamper state banks

JAKARTA (JP): Inadequate legal framework and the high rate of
non-performing loans at state-owned banks hamper them from
generating funds through capital markets and direct private
placement.

Sutan Remy Sjahdeini of state-owned bank BNI 1946 said at a
one-day seminar here yesterday that a number of articles in the
1992 Banking Law need revision so that state banks can go public
easily.

Article 26 of the law, for instance, requires all state banks
planning to go public to offer their shares on local stock
markets only.

"This article limits the state banks from generating funds
through capital markets. The government should actually give
chances for state banks to go international as well, just like
the opportunity given to Indosat," Remy said at the meeting
organized by the Indonesian Business Data Center.

Indosat, the state international telecommunications company,
is the first of the state-owned companies going international by
listing its shares on the New York Stock Exchange. Part of its
shares are also listed on two local stock markets, in Jakarta and
Surabaya.

Remy noted that the article also limits the privatization of
state banks as it stipulates that the private sector, either
local or foreign investors, may not hold the majority of their
shares.

Non-performing

Another constraint for state banks to go public, Remy said, is
the high rate of non-performing loans, which reaches over 10
percent of their total loans. The tolerable rate for any bank
wanting to go public is not more than five percent.

"The only way to solve the problem is writing off the non-
performing loans. However, again our legal frameworks require a
long and time-consuming bureaucratic process to do so," Remy
conceded.

Besides, the World Bank which has extended soft loans to state
banks forbids them from writing off some of the non-performing
loans before 1994 and 1996 for some others.

He noted that the government's policy to name state banks as
"the agents of development" will possibly ward off foreign
investors from buying the banks' shares.

"This term is interpreted to mean that at any time the
government can introduce a new policy or intervention which can
hamper the operation of the banks," Remy said.

The most worrying form of intervention is the duty given to
the banks to finance high-risk projects which are not profitable
at all.

Remy said foreign investors have also stampede the state banks
inefficient in their management and operations as the result of
the government's protection given to the banks in the form of
subsidies a few years ago.

Besides Remy, yesterday's seminar also presented the president
of the state-owned electricity company, PT PLN, Zuhal, the
president of the state-owned telecommunications company PT
Telkom, Setyanto P. Santosa, the president of the state-owned
railway company PT Perumka, Anwar Supriadi, the president of PT
Danareksa, Rustam Effendi, and the international director of
London-based Adam Smith Institute, Peter Young. (rid)