Mandiri to set up SPV to manage bad debts

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.