Soeharto orders banks to improve supervision
JAKARTA (JP): President Soeharto yesterday ordered bankers, whose industry has been rocked by a multi-million dollar credit scam, to make a concerted effort to improve internal supervision and management to prevent making bad loans.
"The Ministry of Justice, the Office of the Attorney General, the National Land Agency, the State Receivership Agency and monetary authorities should also cooperate to seek fair and swift ways to legally settle non-performing loan cases faced by the banking industry," Soeharto said at the opening of the 12th congress of the Association of Domestic Private Banks (Perbanas) at the State Palace here yesterday.
The opening ceremony of the two-day assembly, which got under way yesterday afternoon at Hotel Horison in North Jakarta, was attended by Bank Indonesia Governor J. Soedradjad Djiwandono, Perbanas executives and a number of government officials. The assembly, held every three years, is to elect new members of the board, to formulate programs for the 1994-97 period and to improve the association's statutes.
Soeharto said efforts to improve the banking industry had to be undertaken because it is one of the country's key forces to improve the national economy and boost the generation of public's finances.
"Such a job reflects the enormous responsibility that has been given to the banking industry by the public. Their mission is, therefore, identical with social responsibility," he said.
"I specifically urge all parties related to banking activities to stick to ethical and efficient practice in managing the industry," he said.
Momentous time
In solving problems related to non-performing loans, the banking industry itself, in cooperation with the monetary authorities, should take systematic and transparent measures, he said.
The President's statement came at a momentous time, with the banking industry still reeling after the Bapindo scandal broke, involving a fortune in bad loans involving the privately-run petrochemical firm PT Golden Key. The debt accrued from their borrowing money from the state-owned Bank Pembangunan Indonesia (Bapindo) has reportedly reached Rp 1.3 trillion (over US$600 million). Due to the credit scam, a number of Bapindo officials and Golden Key's founder, Eddy Tansil, are now being tried for civil and criminal violations.
Minister of Finance Mar'ie Muhammad recently reported that the non-performing loans at the country's seven state banks swelled by 360 percent within the past three years to over Rp 14.97 trillion or around 21 percent of their outstanding loans as of last October.
According to Bank Indonesia (the central bank), bad debts alone from both state and private banks had reached some 3.5 percent of the outstanding loans amounting to some Rp 145.9 trillion, as of last November.
Many economic analysts have expressed concern that the increasing bad loans being discovered will affect the confidence of overseas bankers in the Indonesian banking industry. Already, their worst expectations are being played out.
The New York-based Standard & Poor's credit rating agency reported in its ASEAN Banking Profile that the Indonesian banking industry is now facing a period of financial crisis after the banking reforms introduced by the government in the late 1980s.
Responding to the bad judgment, Soedradjad argued yesterday that the rating was invalid.
"The assessment of Standard & Poor's is not valid because it was prepared by its banking group division, which is not in the capacity to make any rating," he told some 350 participants of yesterday's assembly.
Soedradjad said the banking group division has only a function to collect banking data for the benefits of various investors who tap its services under a contract, he added.
He said he directly contacted the agency for clarification of its unfair assessment on the country's banking industry.
"Standard & Poor's rating authority is actually in the hands of its sovereign division," he said.
Take-off era
Soedradjad argued that ups and down are normal for the banking industry, particularly in Indonesia, whose economy is now going to take off.
He said the country's banking industry is actually experiencing a rapid growth. Since the introduction of a deregulatory measures in October 1988, the number of commercial banks has increased from 112 with 1,900 offices to 235 with 5,861 offices, in addition to 9,000 secondary banks. The total assets of the country's banks also increased steadily from 74 trillion to Rp 295 trillion.
The central bank governor said the funds generated by banks from the public also increased significantly, from Rp 38 trillion to Rp 164 trillion. He added that the credits provided by banks grew from Rp 49 trillion to Rp 183 trillion.
"You can see that, out of the Rp 164 trillion funds generated from the public, around Rp 74 trillion was made by private banks as of February this year," he said.(fhp)