State banks get help with bad loans

The Jakarta Post , Jakarta | Tue, 10/03/2006 9:46 AM | Business

Urip Hudiono, The Jakarta Post, Jakarta

The government has revised a regulation on state assets that has been keeping state lenders from quickly resolving their non-performing loans (NPLs).

Coordinating Minister for the Economy Boediono confirmed that President Susilo Bambang Yudhoyono approved amendments last week to a 2005 government regulation on the settlement of claims by state-owned enterprises (SOEs), including loans disbursed by state lenders.

""The main point of this (revision) is that it will provide the necessary basis for state-owned banks to improve their NPL levels,"" Boediono said Tuesday.

The amendment came after the Supreme Court issued a ruling on Aug. 16 that found the assets of state firms, including state banks, are regulated by related laws on private companies and that state firms are considered separate from the state budget. The government had asked for the court's take on the issue.

The revision gives SOEs more flexibility to manage their assets. State banks will be able to take prompt management-level actions to resolve NPLs, such as rescheduling them, or providing debt reductions and write-offs, simply on approval from their shareholders.

This will put state lenders on a level playing field with private banks, since they will no longer have to go through the sometimes lengthy bureaucratic procedures required to get approval from the Finance Minister and House of Representatives to resolve their NPLs.

The banking industry's net NPLs as of June stood at Rp 66.3 trillion (US$7.2 billion), or 8.8 percent of total disbursed loans so far, data from the central bank shows. This surpasses Bank Indonesia's 5 percent maximum net NPL level.

State-owned Bank Mandiri, the country's largest lender by assets, had a 14.7 percent net NPL level from its Rp 100 trillion total lendings, even after its management took the unusual step of publicly announcing its debtors and urging them to immediately resolve their loans.

Bank Negara Indonesia, the second largest lender, had a net NPL level of 11.2 percent of its Rp 60 trillion total lendings.

Boediono explained that an oversight committee will also be established for all state firms, including banks.

""This oversight committee is an important and crucial part (of the revision). It will strictly supervise all corporate actions taken by the management of SOEs, to ensure their accountability,"" he explained.

Finance Minister Sri Mulyani Indrawati said the revision would not hamper current or future probes of corruption allegations at SOEs.

She did not elaborate.

Analysts had said that although the amendment may help state banks, it also had the potential to derail the country's anti-corruption drive, because criminal corruption cases involving the use of state assets could become civil cases.

The Attorney General's Office has submitted an inquiry to the Supreme Court on the issue.

The high NPL level in the industry-dominating state banks has made their managements reluctant to disburse more loans lest they face charges of causing state losses. That has in turn contributed the country's slow rate of economic growth.

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