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)