| NPLs increasing due to inflation: BI |
[May. 9th, 2006|05:06 pm] |
NPLs increasing due to inflation: BI
Non-performing loans (NPLs) at local banks are on the rise as high inflation and interest rates following last year's two rounds of fuel price hikes hit the ability of borrowers to repay their loans, Bank Indonesia deputy governor Siti Fadjrijah said Monday.
Gross NPLs in the banking industry crept up to 9.3 percent as of February from 8.3 percent as of last December.
"Many consumer finance loans, especially for the purchase of motorbikes, have turned sour," Siti told reporters on the sidelines of a banking seminar.
The figure for net NPLs was 5.7 percent in February, above Bank Indonesia's target of 5 percent for this year.
The gross NPL level fell steadily to 5.8 percent in 2004 from nearly 50 percent in 1998. But it has been picking up since 2005, when it rose to 8.3 percent due to higher energy prices, increasing interest rates and tighter regulations on NPLs.
BI director for banking research and regulation Muliaman D. Hadad said that state-owned banks -- including Bank Mandiri, Bank Negara Indonesia and Bank Tabungan Negara -- accounted for most to the increase in NPLs. He pointed out that as of February, 72 percent, or Rp 48 trillion, in problem loans worth Rp 66 trillion were recorded by the state-owned banks.
Siti said that state-owned banks had a higher level of NPLs than private sector banks because they had limited powers to restructure loans. State-owned banks, for example, could not write off loan principal or interest as Law No. 17/2003 defined the debts of state-owned banks as state assets.
"If state-owned banks want to give debt reductions, they need permission from the Finance Minister. If it involves a lot of money, they must go the House of Representatives first," she said.
The president of state-owned Bank Mandiri, Agus Martowardoyo, said that what the state-owned banks now needed was the establishment of a special purpose vehicle (SPV) in the form of an asset management company to handle the NPLs so that the banks could concentrate on the loans that were still performing.
Siti said that if necessary, the central bank would support the establishment of an SPV.
Economist and House member Dradjad Wibowo of the National Mandate Party (PAN) said that establishing an SPV or amending the law could help state-owned banks overcome the burgeoning NPL problem.
However, the Finance Ministry's director general of the treasury, Mulia P. Nasution, said that establishing an SPV or amending the law would not be necessary. He said that currently the government was revising Government Regulation No. 14/2005 on procedures for the writing off of state and local administration loans and Ministerial Regulation No. 31/PMK.07/2005 on procedures for proposing, researching, and determining the writing off of state and local administration loans.
He said that the amendments, expected to be completed in June, would make it easier for state-owned banks to adopt normal banking measures of the kind taken by private banks to resolve their NPL problems, such as providing debt restructuring or reductions.
"In the future, NPLs, should therefore decrease," he said. (08)
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