NPLs of recap banks improve to 15%

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)