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Thursday, February 02, 2006

Jakarta to delay enforcing some bad-loan regulations

Bank Indonesia will delay enforcing some bad-loan rules because it needs more time to build a system to monitor the credit-worthiness of borrowers, Deputy Governor Maman Somantri said.

The central bank will delay enforcing rules where by lenders must classify a loan as bad, even if it is not overdue, if the borrower has defaulted on debts to other banks, Mr Maman said in an interview on Monday.

The rules were to have come into effect in mid-2005, and the delay underlines the challenges faced by lenders and the central bank in assessing whether borrowers are credit-worthy or not. Still, it may allow lenders such as PT Bank Mandiri and PT Bank Negara Indonesia, the nation's two biggest banks, to reclassify some non-performing loans as good.

'This is certainly good news for state banks,' said Tjandra Lienandjaja, a banking analyst at BNP Paribas Peregrine in Jakarta. 'Their non-performing loans will certainly decline and loan-loss provisions will also decline as well. That will help profit at the lenders to increase.'

The central bank will not delay the enforcement of rules under which all banks participating in a syndicated loan, where a group of lenders join to provide funds to a borrower, must reclassify loans if there is a delay in repayment, Mr Maman said. It will also not delay enforcing rules for loans greater than 25 billion rupiah (S$4.3 million), the central bank said in a statement.

The central bank cannot enforce the rules for other types of loans such as ones given to individuals and small companies of between 500 million rupiah and 25 billion rupiah until it has completed construction of a system to track defaults. The implementation of the rule for such loans may be delayed for as long as one and a half years, the statement said.

The loan-classification rules, which force banks to prepare for possible losses if a borrower appears to be at risk of default, are among reforms introduced after the 1997-98 Asian crisis.

The collapse in the value of the rupiah left hundreds of companies unable to pay back foreign currency debt, triggering thousands of defaults by both companies and individuals.

The banking industry almost failed, forcing the government, backed by the International Monetary Fund, to orchestrate a 450 trillion rupiah bailout of the industry.

'Indonesian banks usually have enough time to digest any of Bank Indonesia's regulations, but for this regulation lenders didn't have much time. That affected state lenders like Bank Mandiri and Bank Negara,' said Fendi Susiyanto, who helps manage about US$170 million at PT Bank Permata in Jakarta.

'Still, if Bank Indonesia is now trying to delay the implementation, it shows inconsistency.'

Mr Maman said the central bank plans to rate banks on a scale of one to five to take account of their overall corporate governance and transparency. To that end, Bank Indonesia is pushing banks to set up audit and remuneration committees. -

February 2, 2006

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