Bank Mandiri, the country’s largest bank, is to restructure Rp 3 trillion (around US$225 million) in debts owed by a number of firms hard hit by the global downturn.

Mandiri director Abdul Rachman said on Wednesday the restructuring was being made at the request of the companies, which are mostly exporters facing financial difficulties as slower demand for their products has hurt their earnings.

“I hope that with this restructuring program, their business will keep rolling in,” Abdul said.

Under the restructuring, which will start to take effect from March until June, each debtor would be given the chance to reschedule their debt payment.

“We will give them options for delaying the overdue debts of up to one year,” Abdul said.

Each debtor could delay payment on the debt principal instalments, but would still be required to pay the interest.

Abdul said that the most affected companies came from the footwear and textile sectors, where demand for products was severely affected as the biggest importers — the US and EU countries — have suffered most in the economic crisis.

Such industries, especially export-oriented sectors, are the first to be hit hardest by the global economic crisis, which has  had an increasingly negative economic impact starting from last October onward.

In turn, Indonesian banks have also had a fair share of problems reflecting global pressures on banks.  

Indonesian Bank data shows that bad loans held by commercial banks jumped by 35 percent to Rp 14.3 trillion (US$1.24 billion) in 2008, up from Rp 10.6 trillion in 2007.

Banks included in this category include Bank Central Asia (BCA), Bank Danamon, Bank CIMB Niaga, Bank Panin, Bank Internasional Indonesia (BII) and Bank Permata.

Aside from bad loans, some cases of high exposure by Indonesian banks to derivative transactions have also raised some concerns on the part of the central bank.

BI deputy governor Budi Mulya has said 15 Indonesian banks were exposed to derivative deals worth up to $4 billion made before the December ban on such deals came into affect, with the banks originally hoping that these deals would all mature in the second half of this year.

BI is tightening up the rules on these derivative products.

Exposure to derivatives losses has already been felt by a number of banks, whose profits have been cut when they had to set aside large provisions against possible losses.

The net profits of CIMB Niaga, the nation’s sixth largest bank, plummeted by 55 percent last year to Rp 678 billion after the setting aside of significant reserve funds to cover potential derivatives losses.

For the same reason, Bank Danamon, the country’s fifth largest bank, saw its net profits drop in 2008  by 28 percent to Rp 1.5 trillion, down from Rp 2.1 trillion in 2007.

A derivative transaction is a foreign exchange contract that derives its value from an underlying asset, commodity or liability, and is normally used as a hedging device.

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