Thu, 25 May 2000

Recovery of closed bank assets tough

JAKARTA (JP): Bank Indonesia said on Wednesday that it was facing various difficulties in its efforts to recover the assets of 16 banks liquidated by the government in November 1997.

Bank Indonesia senior official, Sri Rahayu Wiwi, said that only Rp 2.9 trillion (US$343.19 million) worth of assets had so far been recovered -- around 20 percent of the total assets of the closed banks.

"Most of the assets of the liquidated banks are non-performing loans which are difficult to recover. Selling fixed assets like cars or computers is much easier," she told a press conference.

She said that the main problem was the weak legal basis binding the collateral, causing difficulties in liquidating the assets.

Sri pointed out that in some cases the collateral assets had also been pledged by the debtors to other parties and in many others the assets are being disputed by other parties or were not backed up by the necessary legal documents.

She added that quite a number of the non-performing loans were not backed by sufficient collateral.

"So it will take us a longer period of time to liquidate the assets because of these problems. We'll have to go through a long legal process which is time-consuming and expensive. We're not IBRA," Sri said, referring to the Indonesian Bank Restructuring Agency which has extra-judicial power to dispose of banking assets, even those which have been pledged to other parties.

The government closed down 16 private banks in 1997 in the first round of the bank restructuring process since the financial crisis broke out in the middle of that year.

The government formed a team in charge of liquidating the assets of the closed banks which is supervised by Bank Indonesia.

The team has a mandate for five years.

IBRA has a similar job, but the agency was only established in 1998. The agency has taken over the assets of banks closed down since 1998. The relatively powerful IBRA has also been slow in recovering assets.

There has been increasing concern that part of the collateral assets had been hidden or sold by the former owners of the closed banks.

Sri dismissed such speculations, pointing out that the slow progress in liquidating the collateral assets was due to the above reasons.

"It will be much easier for us if the (now closed) banks had used the correct legal process in binding the collateral assets," Sri said.

"Because of this legal snag we often lose in court," she added.

Sri said that the special team was now in the process of reviewing the value of the collateral assets of the closed banks.

Bank Bali

Separately, Bank Indonesia deputy governor, Subarjo Joyosumarto, said on Tuesday that the country's banking authority would not offer sanctions to domestic banks failing to reach a minimum capital adequacy ratio (CAR) of 4 percent by next month.

Subarjo said that the 4 percent CAR target set for June was merely a "working plan" for the banking authority, not a ruling which carried a penalty.

"There will be no sanction," he said, in response to the question of whether Bank Bali would be liquidated if it failed to meet the minimum 4 percent CAR target next month.

CAR is the ratio between capital and risk-weighted assets.

The government has not been able to recapitalize publicly listed Bank Bali because its former owner and president, Rudy Ramli, won a law suit that required Bank Indonesia and IBRA to revoke the government's decision to nationalize the bank last year.

IBRA has said that it would recapitalize Bank Bali if Rudy dropped his legal suit but Rudy refused to back off.

Both IBRA and the central bank have filed an appeal against the State Administrative Court's verdict issued late in March.

The government has nearly completed the recapitalization of most of the country's banking sector.

The second-stage recapitalization of Bank Danamon, which will be merged with eight smaller banks, is expected to start immediately this week after the House of Representatives approves the plan. (rei)