RETAIL BANKING | Cesar Tordesillas, Indonesia

Indonesia's state banks could now give credit haircuts

A court ruling allows state-owned banks to restructure or sell their non-performing loans.

This means troubled consumers would pay less than their actual debts to clear the balance sheet.

Credit haircuts were previously enjoyed only by privately-owned banks.

State banks were previously forbidden to discount bad loans as the law classifies them as state receivables, which means the banks have an obligation to collect the loans, down to the last penny.

“It is inefficient for us to continue claiming the loans and monitoring collateral assets, such as their buildings and factories,” said Sofyan Basir, the president director of the state-owned Bank Rakyat Indonesia. 

Sofyan explained that many state-owned banks, including BRI, had bad loans that had been stuck for long time in their respective balance sheets, but unfortunately could not give a haircut according to the law. The implementation of the ruling, therefore, would expedite the settlement of BRI’s bad debts.

Bad loans listed in the balance sheets of state-owned banks in Indonesia total US$9.5 billion, which is equivalent to 54 percent of the banks’ equity base, according to an estimation by Fitch Ratings.

The rating agency said that the ruling would have a positive impact and could raise state-owned banks’ capital adequacy ratio by an average of 2 percent. This [the ruling] could bolster their core capitalization to maintain rapid loan growth amid limited fresh capital,” said Fitch.

BNI president Gatot Suwondo acknowledged that the ruling would be a financial boon for his bank amidst tighter competition with other commercial banks in the country, but argued that he needed more time to study the ruling before his bank could fully implement it.

“However, in overall the ruling is good for us. This is a sign that we will soon have an “level playing field’ with commercial banks”, said Gatot.

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