Arijit Ghosh and Aloysius Unditu – Indonesia's central bank may ease some bad-loan rules to enable lenders to boost credit as growth in Southeast Asia's biggest economy slows to an eight-year low.
Bank Indonesia may scrap a rule that forces banks to classify loans as non-performing if they plan to reorganize the debt, Governor Boediono said. Non-performing loans are expected to rise this year, he said.
"The banks complained 'this is not fair, what we want to do is anticipate non-performing loans, not to let it happen'," Boediono said in an interview in Jakarta yesterday. "We think that is correct."
The central bank, struggling to prop up the economy amid the worst global recession since World War II, wants to achieve lending growth of at least 15 percent this year after a 31 percent increase in 2008, Boediono said. Bank Indonesia should go further and change the definition of non-performing loans to ease pressure on lenders, said Johanes Bambang Kendarto, a director at PT Bank Mega in Jakarta.
Non-performing loans in Indonesia are classified as debt on which no principal or interest has been paid for more than 90 days. Bank Indonesia classifies loans in arrears for more than 180 days as irretrievable.
"Late interest payments or installments" can lead to a downgrade to a lower category of non-performing loan, said Roosniati Salihin, PT Bank Pan Indonesia's vice president director. "Loan risk is measured depending on three pillars, the feasibility, the cash flow and the prospect of the business. During this difficult time, these criteria become blurred."
Improve transparency
Bank Indonesia tightened lending rules in 2005 in a bid to improve transparency and sell bank stakes to recoup 450 trillion rupiah ($39.6 billion) spent to bail out lenders after the 1997- 98 Asian financial crisis. The move came after banks set higher lending targets for the year due to an improving economy.
The rule changes in 2005 prompted PT Bank Mandiri, Indonesia's biggest lender by assets, to set aside 4.4 trillion rupiah in provisions leading to an 89 percent decline in profit. Mandiri's former President Director Edward Cornelis William Neloe was fired by the government in 2005 amid an investigation of loans at the bank. Neloe was acquitted of corruption charges a year later.
PT Bank Central Asia, Indonesia's biggest financial services company by value, last year increased its bad loan provision eight-fold to 1.74 trillion rupiah as it anticipated a "fall in quality of loans," President Director Djohan Emir Setijoso said on March 30.
'Restructuring loans'
Combined net income growth at Indonesia's five largest banks is estimated to slow to 6 percent this year after an 18 percent expansion in 2008, according to a compilation of analysts' forecasts.
"We are interested in maintaining credit growth," Boediono said. "One way to facilitate that is to improve the room for restructuring loans."
The central bank may attempt to boost lending growth by trying to get commercial lenders to participate along with the government in infrastructure projects such as building power plants and roads, Boediono said.
Bank Indonesia is also encouraging lenders to raise capital to help them handle an expected increase in bad loans, Boediono said. The government may also sell part of its stake in a state- run bank, he said without identifying the lender.
PT Bank Danamon Indonesia, backed by Temasek Holdings Pte and Deutsche Bank AG, is planning to raise 4 trillion rupiah selling shares in a rights offer this month to raise capital.
"After the banks manage to ride through the non-performing loan hump, people will concentrate on growth again," said Mulya Chandra, an analyst at CIMB-GK Securities Pte in Jakarta. "I am expecting banks will start to have an appetite to lend again."