Mandiri moves to speed up bad debts recovery

Urip Hudiono, The Jakarta Post, Jakarta

To cut the number of its non-performing loans (NPLs), state-owned Bank Mandiri plans to auction through the finance ministry assets put up as collateral by some of its loan defaulters.

The plan was affirmed on Monday with the signing of an agreement for the auction between the bank's president director Agus Martowardojo and the Ministry of Finance's director general of state claims and auctions, Machfud Sidik.

"This is part of our efforts to take stern action and give a lesson to uncooperative debtors, after all our attempts to restructure, reschedule and recondition their loans failed," Agus said.

"We expect this effort will help reduce our NPL ratio, as all the auction proceeds will be used to recover the defaulted loans."

The signing of the agreement, which is the first of its kind, was witnessed by Minister of Finance Jusuf Anwar, State Minister for State-Owned Enterprises Sugiharto and Bank Indonesia governor Burhanuddin Abdullah.

The assets that will be auctioned include a total of 380 plots of land and other properties located throughout the country, from 140 Mandiri loan defaulters.

Agus declined to specify how much the total assets would be worth pending their complete assessment, nor the recovery rate that Mandiri expects from the auction. He said, however, that the auction process was expected to be completed within the next one- and-a-half months.

Sugiharto said the directorate general would start the auction by offering Rp 259 billion (US$25.9 million) worth of assets. He expected that other state banks would also consider auctioning collateral assets of their loan defaulters in order to recover debts and as a lesson to unscrupulous debtors.

Machfud explained that the auction would be held through an open tender, with independent auditors assessing first the value of the larger assets, while other smaller assets would be determined according to their official taxable valuation (NJOP).

As of September, the directorate general was managing a total of Rp 22.7 trillion worth of assets, of which Rp 20.5 trillion alone came from the banking industry. The directorate general usually manages to recover some Rp 1 trillion per year, and expects to be able to recover only 3 percent this year.

Mandiri's gross NPLs as of June amounted to Rp 25.2 trillion (25.9 percent), as compared to Rp 6.7 trillion (8.2 percent) as of June 2004. Its net NPLs has also been on the rise, reaching 15.4 percent from 1.8 percent in 2004.

Bank Indonesia requires banks to maintain a maximum net NPL at 5 percent, which it has also set as a requirement to become an anchor bank that will lead the banking sector's consolidation through mergers and acquisitions.

Mandiri said it aims to reduce its ratio of non-performing loans to below 5 percent by 2007.