PT Bank BNI plans securitization of nonperforming loans

JAKARTA (JP): Publicly listed state-owned PT Bank Negara Indonesia (BNI) plans securitization of its nonperforming loans (NPL) as part of its efforts to reduce its NPL ratio to the maximum limit of 5 percent later this year, as set by the central bank.

BNI president Saifuddien Hasan said that under the plan, BNI would issue commercial papers to replace a portion of its NPL. In return, investors receive payments from the owners of the NPL.

Hasan said that BNI's NPL, worth Rp 7 trillion (about US$615.92 million), had led to an NPL ratio of 24.9 percent, way above the 5 percent limit allowed this year under Bank Indonesia regulations.

The NPL ratio measures a bank's nonperforming loans -- loans whose principal and interest payments have been overdue for more than three months -- against its total loans.

Hasan admitted that reducing the NPL ratio from 24.9 percent to 5 percent within this year was a tall order.

"We're actually pessimistic about meeting that target, we'll just have to try our best," he told reporters following the bank's annual shareholders meeting.

With only six months left to achieve the target, Hasan said the bank had still to work out the details of the securitization plan.

He declined to say how much of the Rp 7 trillion in NPL BNI planned to securitize, or the type of commercial papers it would issue.

Securitization could be either through bonds, floating rate notes, or intermediary notes, he said.

Despite the short time remaining, Hasan said early calculations estimated that achieving an NPL ratio of 5 percent this year was possible.

"It will largely depend on the economic conditions. If they don't deteriorate then it's possible," he said.

He said economic conditions determined the debtors' corporate performance and hence their debt servicing ability.

Aside from securitization, BNI also plans to unload another portion of its NPLs through an asset management credit (AMC) unit.

He said this wholly-owned subsidiary will be tasked with restructuring the NPLs and selling them to distressed debt investors.

The task equals that of the AMC unit at the Indonesian Bank Restructuring Agency (IBRA), which takes over NPLs from local banks.

To replace the NPLs, IBRA has injected the local banks with government bonds under the bank recapitalization program. The scheme allows banks to maintain the required minimum capital adequacy ratio (CAR) of 4 percent.

CAR measures a bank's capital against its risked weighted assets, which include loans.

Under the recapitalization program, the government via IBRA has issued more than Rp 406 trillion worth of bonds to four state-owned banks and over 20 private banks.

Last year alone, IBRA took over Rp 13.9 trillion in NPLs from BNI. IBRA injected BNI with Rp 61.8 trillion in government bonds, propping its CAR to around 14 percent.

Later, an independent due diligence by Arthur Anderson concluded that the bonds issued for BNI were Rp 630.6 billion larger than they should be.

Hasan said BNI planned to return the excess bonds to the government, and pay back another Rp 34 billion in interest payments earned from these bonds.

He said BNI's shareholders approved the plan, but the bank had to await a response from its creditors.

"They (creditors) have 60 days to respond after we announce the plan tomorrow (Tuesday)," he said, adding that if one or more creditor insisted on rejecting the plan, the court would have the final say.

For this year, Hasan said the bank plans to extend loans worth at least Rp 3.4 trillion, lower than last year's lending of Rp 4.2 trillion.

As of May the bank had already channeled some Rp 2.7 trillion into new loans, he added. (bkm)