Officials warns of bad loans to SMEs

Rendi A. Witular, The Jakarta Post, Jakarta

The Office of State Minister of State Enterprises has indicated massive amounts of bad loans channeled last year by state banks to small and medium enterprises under the business partnership program.

Suad Husnan, deputy state minister of state enterprises for the banking and financial sectors, said some 27 percent of a total Rp 866 billion (US$92.1 million) loans channeled by state banks had gone bad.

"This bad lending is somewhat alarming. This is mostly because small and medium firms do not fully understand the function of the program," Suad told a hearing at the House's Commission VI for state firms, trade and industry on Monday.

Suad said the small businesses participating the programs generally considered the loans grants, which did not need to be repaid.

However, many lawmakers rejected Suad's explanation, saying the bad lending was more likely to stem from the widespread corruption in state companies.

"There are indications of irregularities in the channeling of the loans under these programs, because they are not coordinated and supervised well enough," said Commission VI member Zulkifly Hasan of the National Mandate Party (PAN).

In order to better supervise the program, Zulkifly suggested that state-owned Bank Rakyat Indonesia (BRI) take over the entire program. The bank had sufficient experience in dealing with small and medium businesses and was supported by networks throughout the country, he said.

The money available for small and medium enterprises under the partnership program comes from the net profits of state banks.

The lending is not managed under a single coordinated institution, however, with but is handled piecemeal by either the state banks or designated financial firms.

According to Suad, state banks had allocated some Rp 1.06 trillion in loans for the program this year.

The loans for the businesses excluded the regular lending allocated by local banks to similar SME-empowerment programs, which totaled about Rp 60.5 trillion this year.

Meanwhile during the hearing, Bank Mandiri reported that 13.64 percent of its outstanding loans for the partnership program worth some Rp 122.8 billion last year were categorized as bad loans. The remaining 9.05 percent were categorized as unperformed and 33.89 percent as underperformed.