Soeharto tells banks to reduce problem loans
Soeharto tells banks to reduce problem loans
JAKARTA (JP): President Soeharto has called on the country's
banking industry to cut down problem loans, strengthen capital
and minimize banking crimes.
Soeharto told the opening session of an Indonesian National
Private Banks Association meeting here yesterday that failure to
tackle bad loans could threaten the banking industry and national
interests.
"Problem loans and other costs are making the economy
inefficient. They also burden bank customers and the public,"
Soeharto said.
Bank Indonesia (the central bank) governor, J. Soedradjad
Djiwandono, said earlier this month that problem loans totaled Rp
10.23 trillion (US$4.2 billion), 2.9 percent of total loans
outstanding as of the end of April.
Soeharto said the high level of problem loans had resulted in
the wide interest spread between borrowing and lending rates,
which were wider than the international standard.
Indonesia's interest spread currently stands at 5 percent,
compared to below 3 percent in advanced countries.
The President noted that the wide interest spread had burdened
the business sector, which eventually made Indonesian products
and services less competitive on the world market.
"We must try hard to narrow this wide interest spread,"
Soeharto said, adding that one way to narrow the spread was by
reducing problem loans in the banking industry.
"I ask for your attention to these problem loans. Even though
in general, there has been progress in dealing with this problem,
efforts to minimize problem loans are the best way to enhance the
efficiency and health of the nation's banks," said Soeharto.
Clear boundaries between the board of directors and the bank's
owners should also be defined regarding their authority and
responsibilities, he added.
"Credit evaluation should not be relaxed only because the
project is sponsored by the (bank's) group or owner," Soeharto
warned.
He warned that irresponsible management of public funds would
erode people's trust in the banking industry.
"Bank owners and debtors should always remember that banks use
people's money, which is entrusted to them," he noted.
He added that effective and objective evaluation, procedures
and administration in the banking business should be upheld.
The President also called on local banks to strengthen their
capital base to compete in a globalized financial market.
The government would continue to support any bank's efforts to
raise public funds through the capital markets or merge with
other banks to strengthen their capital structure.
He noted that small but healthy banks would still have room
for business expansion, especially in Indonesia, whose economy
was still growing rapidly.
"Our country, which is still developing, serves as a fertile
land for either large or small banks," Soeharto said.
The President also called on the banking industry to pay
special attention to bank-related crimes, which are becoming more
and more sophisticated.
"We should realize from the outset that the rapid growth in
network and banking business ultimately needs a reliable security
system," Soeharto said.
Soedradjad reported yesterday that apart from the weaknesses
caused by problem loans, Indonesia's banking industry had grown
rapidly in terms of branch network, third party funds, credits
and productive assets.
Indonesia's 237 commercial banks recorded total assets of Rp
526 trillion as of May 1997, from Rp 334 trillion in December
1994.
In the same period, third party funds raised by commercial
banks increased to Rp 317 trillion from Rp 188 trillion. Credits
rose to Rp 357 trillion from Rp 217 trillion.
The number of bank operational offices increased by 1,510
offices, to 7,536 offices. (rid)