Indonesia's state banks to write off bad loans

Level playing field with private banks.

This is what Indonesia's state-controlled banks are seeking by writing off bad loans they inherited from the 1997-98 financial crisis.

They have agreed on setting up procedures in implementing this.

According to data from the State Enterprises Ministry the four state lenders — Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia and Bank Tabungan Negara — are inheriting Rp 90 trillion or US$9.3 billion in bad loans from the crisis.

Until a Constitutional Court had ruled on Sept. 25, the banks were not allowed to write off the loans, as those loans were considered state receivables, which if left uncollected might lead to corruption charges to the banks’ executives.

The bad loans have been sitting on the banks’ balance sheet, eroding their capacity to disburse more loans.

With more bad loans sitting on a lender’s balance sheet, it means they have to set aside higher provisioning funds. In common banking practices, such bad debt is typically treated as a loss, and lenders do not need to set aside funds to cover them.

Zulkifli Zaini, the president director of Bank Mandiri, said executives from the four lenders have agreed on 15 procedures.

According to their discussion, the four lenders would be able to restructure as much as 85 percent of the Rp 90 trillion in bad loans. Zulkifli said in September that Bank Mandiri may be able to restructure Rp 32 trillion or US$3.3 billion worth of uncollected loans.

For more.