Mandiri to set up SPV to manage bad debts

The Jakarta Post, Jakarta

Indonesia's largest lender by assets, Bank Mandiri, plans to set up a special purpose vehicle (SPV) next year to reduce the number of large non-performing loans (NPLs), a company executive says.

The SPV, likely to take the form of a joint venture tasked only with managing loans that have turned sour, will be officially established next year and will be tasked in the first phase with handling some Rp 3 trillion (about US$300 million) worth of bad debts, said Johannes Bambang Kendarto, the bank's treasury and international director, on Wednesday.

Mandiri's gross NPLs as of September stood at Rp 24.6 trillion (24.5 percent), as compared to Rp 6.3 trillion (7.2 percent) as of September 2004. It also had net NPLs of 14.27 percent as of September this year, way above the central bank's permissible level.

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

Mandiri preferred to set up a joint-venture SPV in which it would have a maximum share of 19 percent as the debts transferred to it would not have to be consolidated, Kendarto added.

The bank had received a number of statements of interest from local and foreign companies, but had not yet decided who to join up with.

"We hope that the recovery rate will be around 40 percent, like several best practices in Thailand," he said.

Earlier this week, Mandiri launched a plan to auction through the finance ministry some Rp 257.9 billion worth of assets put up as collateral by some of its loan defaulters.

Bank Indonesia requires banks not to exceed a maximum net NPL rate of 5 percent, which has also been set as a requirement for becoming one of the anchor banks that will be expected to lead the banking sector's consolidation through mergers and acquisitions.

In spite of its high NPL rate, the bank still plans to expand its lending by 16 percent from Rp 106.7 trillion as of September.

"We will try to reduce the proportion of our corporate loans to 40 percent," president director Agus Martowardojo said, adding that corporate loans amounted to 45 percent of the bank's current loans.

At present, about 75 percent of Mandiri's NPLs involve corporate loans.

In the first nine months of 2005, the bank's net interest income dropped to Rp 6.8 trillion, compared to the Rp 7.2 trillion it booked in the same period last year.