Tue, 30 Sep 2003

Mandiri to cut debt for SMEs

Rendi A. Witular, The Jakarta Post, Jakarta

Shareholders of state-owned Bank Mandiri approved on Monday the bank's plan to grant a Rp 2 trillion (US$238 million) debt retrenchment, mostly to debtors in the category of small and medium-sized enterprises, in a bid to help improve the recovery of troubled loans.

The retrenchment facility, also known as a haircut, will be applied to debtors whose loans have been written off by the bank. As of June this year Mandiri had written off Rp 20 trillion (US$2.38 billion) worth of bad loans.

The decision to grant the retrenchment facility was made at an extraordinary shareholders meeting, which also retained E.C.W Neloe as president of the country's largest bank in terms of assets.

President commissioner of Mandiri Binhadi said that the retrenchment could help the bank recover some part of its bad loans and at the same time help the debtors to keep their businesses alive so that they could repay their debts later.

"We expect maximum recovery through this decision although the amount will be small. But it is better than we get nothing at all," he said, adding that the mechanism for the retrenchment program was still being discussed by the management.

Mandiri's nonperforming loans (NPL) for the first semester of this year stood at 7.43 percent, or Rp 4.82 trillion. This NPL ratio is higher than the 5 percent limit set by the central bank this year.

As of June this year, Mandiri's total lending reached Rp 66.8 trillion, of which 65 percent was channeled to the corporate sector.

Analysts fear that the high figure for corporate financing could harm Mandiri's profitability in the future as the sector is still considered volatile and prone to defaults.

Elsewhere, the shareholders also agreed to hold another meeting on Oct. 30 to decide on a proposal for the bank to carry out quasi reorganization in a bid to scrap its accumulated losses of Rp 161 trillion.

Quasi reorganization is a financial engineering tool taken to eliminate the accumulated losses via asset revaluation.

Through such accounting measure, the bank expect its asset value to increase so that it can plug the negative figures in its balance sheet.