Measures planned to fix NPL problem

The Jakarta Post , Jakarta | Sat, 04/22/2006 10:39 AM | Business

The Jakarta Post, Jakarta

Coordinating Minister for the Economy Boediono said Friday that measures to help resolve the worrying issue of non-performing loans (NPLs) at state-owned banks would be announced soon as part of a new financial sector reform package.

He declined to provide details of the planned measures, saying only that a request from bankers to set up a special purpose vehicle to take over the NPLs was being considered as one option.

""I can't reveal it right now. But resolving the NPL problem at state-owned banks is one of the focuses of the reform package,"" he was quoted by Antara as saying.

The state-owned banks need the government's help to resolve the NPL problem as the relevant legislation prevents them from employing common banking measures to deal with assets that have turned sour, such as the offering of debt reductions as part of restructuring deals, and selling NPLs at a discount. While such measures can easily be resorted to by private sector lenders, state-owned banks are prevented from doing so as, under the legislation, the assets of public-sector banks are viewed as state assets.

Resolving the NPL crisis at the state-owned banks is crucial if they are to be able to boost lending so as to help accelerate economic growth. Bank Mandiri, the country's largest bank in terms of assets, had an NPL ratio of 26.5 percent as of end of 2005, while Bank BNI, the third largest bank, has an NPL ratio of 10.7 percent, much higher than the central bank's limit of 5 percent. The two banks together control 27 percent of the domestic banking market.

Bank Mandiri president Agus Martowardojo said recently that the government should introduce new legislation that would allow state-owned banks to provide debt reductions and sell NPLs. In addition, he said, the government needed to set up a special purpose vehicle (SPV) to take the NPLs off the banks' books.

He expressed the hope that the government would announce measures along these lines as part of the planned financial sector reform package, which is expected in June.

Agus said that the measures needed to be comprehensive so that the NPL problem could be fully resolved.

But it remains unclear whether the government will agree to set up an SPV as requested by the bankers. Boediono simply said that setting up an SPV was one of the options available.

He stressed that not all of the country's banks were facing an NPL problem, meaning that some banks were still able to carry out their intermediation function.

""Yes, some banks have been slow to extend new loans because of the NPL problem. But others are still doing fine, so don't make any generalizations,"" Boediono said.

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