Thu, 20 Sep 2001

NPLs of recap banks improve to 15% by Berni K. Mustafa

JAKARTA (JP): The government said on Wednesday the average nonperforming loans (NPLs) rate of recapitalized banks has improved to 15 percent as against over 20 percent last year, though still far off from Bank Indonesia's 5 percent year-end target.

Indonesian Bank Restructuring Agency (IBRA) Deputy Chairwoman Felia Salim called the 15 percent average NPLs rate reasonable.

"The rate reflects our present condition. Given current interest and exchange rates, I think it's quite good," Felia said after a hearing between IBRA and House Commission IX for financial affairs.

According to Felia, considering the prevailing high interest rate environment, banks had done their best to reduce the NPL rates.

"They (the banks) have prepared special units to handle the restructuring (of NPLs)," she explained.

Nonperforming loans are those in which debtors have missed the principle installments or interest payments by 90 days or longer.

The NPL rate then measures a bank's nonperforming loans against its total loans.

In a bid to improve the banking sector's health, Bank Indonesia requires banks to reduce their NPL rate to 5 percent by the end of this year.

But with interest rates still high, channeling new loans -- that would have reduce the NPL rate -- is difficult.

This left most banks to restructure their nonperforming loans in order to cut their NPL rate.

Felia added that Bank Indonesia's 5 percent NPL requirement was not mandatory for the banking sector to achieve this year.

"In my view it's not natural to seek the 5 percent (NPL rate)," she said, adding that what mattered was the quality of the restructured loans.

As of July 2001, according to an IBRA document, Bank Bali showed one of the highest NPL rates with 24.7 percent, followed by Bank Lippo with 24.3 percent and Bank Niaga with 24.1 percent.

For the same period, recapitalized banks with the lowest NPL rates included Bank Bukopin with 3.6 percent, Bank Bali with 4.3 percent and Bank Patriot with 6.6 percent.

Another criteria Bank Indonesia is imposing on banks this year is to raise their capital adequacy ratio (CAR) to 8 percent.

CAR measures a bank's risked weighted assets, including nonperforming loans, against its capital.

The central bank has said that failing to meet this condition will lead to either closure or a merger of the bank.

But Felia assured that most banks were capable of meeting the minimum CAR level of 8 percent by the end of this year.

She added that by October or November, IBRA would have to find a solution for banks unable to meet that condition. She did not elaborate.

IBRA's head of asset disposal unit, Dasa Sutantio said the agency plans to take over potential nonperforming loans of the Sinar Mas Group at Bank Internasional Indonesia (BII) sometime next week.

This is to avoid BII calling in its blanket guarantee deal with IBRA, in which the agency must cover Sinar Mas debts should the group miss its due dates.

"Our anticipation is that we don't have to do the pay out, because by the time, or before the loans fall due, IBRA should have already take over SMG (Sinar Mas) debts," Dasa told reporters at his office.

IBRA intends to take over Sinar Mas debts to BII and replace them with excess recapitalization bonds from other banks, called recycle bonds.

The agency will take over US$1.059 billion plus Rp 1.8 trillion in Sinar Mas debts to BII. The move would automatically annul IBRA's blanket guarantee deal with BII.

According to Dasa, by Sept 24, 2.5 percent of Sinar Mas total debts to BII fall due.(bkm)