Soeharto orders banks to improve supervision

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)