Problem loans at banks $8.7b
JAKARTA (JP): Problem loans at all banks in the country declined from Rp 20 trillion (US$9.2 billion) last November to Rp 18.8 trillion ($8.7 billion), 10.2 percent of the total credits outstanding as of March, Governor of Bank Indonesia Soedradjad Djiwandono says.
"Of the problem loans, some Rp 12.2 trillion were classified as doubtful credits and Rp 6.6 trillion as bad loans," Soedradjad said.
He said compared to the situation last November, the doubtful loans as of March reflected a 13.1 percent decrease but the bad credits posted a Rp 1 trillion or 6.5 percent increase.
The central bank chief told the House members that state banks accounted for Rp 8.6 trillion of the doubtful loans and Rp 4.4 trillion of the bad credits.
"The doubtful loans at the state banks represented 8.9 percent of their total lending and the bad credits 4.6 percent," he noted.
He noted that the total banking credits outstanding as of March were Rp 183.6 trillion, of which Rp 95.2 trillion belonged to the seven state banks and some Rp 88.4 trillion to private banks.
Private national banks, however, recorded a better performance because their doubtful loans amounted only to Rp 2.9 trillion or 4.9 percent of their total lending and their bad credits Rp 1.5 trillion or 0.8 percent of their total credits.
According to Soedradjad, foreign and joint-venture banks incurred only Rp 300 billion in doubtful loans and bad credits, which together represented 1.9 percent of their total lending.
"Bank Indonesia in cooperation with the World Bank is now studying the possibility of setting up a special institution to take over the problem loans," he added.
Poor management
Soedradjad said investigations made jointly by a special team of Bank Indonesia and experts from the World Bank since 1992 concluded that the major cause of problem loans was poor management and inadequate credit assessment.
"The inadequate credit assessment seems to have been caused by the fierce competition since 1990 that forced many banks to resort to "go go lending" to maintain market shares," the governor pointed out.
He said the central bank had discussed the findings of the team with the directors of the banks concerned and firm measures had been taken to cope with the problem loans and to prevent recurrence of non-performing assets.
The findings of the team also prompted the central bank to order state banks to closely monitor the performance of their 50 largest borrowers.
"We have also instructed state banks to strengthen their boards of commissioners (supervisors) with experts," Soedradjad added.
According to the governor, many banks seemed to fail to require high professional standards from their commissioners (supervisors).
"Therefore, we have tightened the requirements for bank commissioners and have instructed the board of commissioners of every bank to submit a twice yearly report on their supervision activities," he said.
Bank internal auditors also have been ordered to send the findings of their audits to the board of commissioners, Soedradjad added.
The central bank, he said, is also improving procedures for prohibiting bad debtors from becoming shareholders or executives of banks.
"Bank Indonesia has ordered banks to submit periodical policy statements on big loans extended to individual or corporate borrowers who are related to bank owners or executives," he said.
Soedradjad said the central bank also would eventually oblige banks to write off their problem loans from their balance sheets and if this measure resulted in adequate capital these banks would have to increase their capital.
"If they fail to increase their capital, these banks will be required to merge with other banks," he added.
Foreign debts
Meanwhile, State Minister for Development Planning Ginandjar Kartasasmita told a separate hearing with the House yesterday that Indonesia's official foreign debts (based on disbursement) as of March totaled $55.03 billion.
"Around $38.16 billion of the total were given by Indonesia's creditors affiliated with the Consultative Group on Indonesia and the other $16.87 billion were derived from other sources," GInandjar said.
The government recently put Indonesia's total foreign debts owed by the public and private sectors at $90 billion.
The latest World Bank Report on Indonesia was quoted by Reuter yesterday as calling for a prudent policy of debt management, arguing that Indonesia's large foreign debts might hinder its economic growth. (fhp/05/vin)