Problem loans at banks $8.7b

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)