Bank Mandiri May Restructure Rp 32t in Loans

ID/Grace Dwitiya Amianti

A ruling by Indonesia’s Constitutional Court will allow Bank Mandiri, Indonesia’s biggest lender by assets to restructure Rp 32 trillion ($3.3 billion) worth of uncollected loans.

The ruling, announced last week, would allow state-controlled lenders such as Bank Mandiri and Bank Negara Indonesia to claim uncollected loans attached to the state, which are currently being taken care by the Finance Ministry’s State Receivables Affairs Committee.

President director of Mandiri, Zulkifli Zaini, said the state inherited a massive amount of uncollected loans from its predecessors, of which cases are being handled by the finance ministry.

Mandiri was derived from the merger of state-lenders, Bank Bumi Daya, Bank Dagang Negara, Bank Ekspor Impor and Bank Pembangunan Indonesia in 1999, a year after the country took the hardest punch from the Asian financial crisis that led to banks being liquidated.

Following the crisis, many debtors went bankrupt and were unable to payoff their loans. When the government took control of the four predecessors of Bank Mandiri, the uncollected debts became the government’s assets.

“So for years it kept standing there [in the company’s balance sheet],” Zulkifli said, adding that the lender can do little about restructuring the loans, which should be booked as receivables.

The Sept. 25 ruling will change the status of the debts. However, in order to be implemented, the ruling needs a regulation from the finance ministry, and recognition from law enforcement, such as the police, the attorney general or the Corruption Eradication Commission (KPK).

Zulkifli said he has yet to see the report on Constitutional Court ruling, but he welcomed it.

Part of the benefit of the ruling means that Bank Mandiri can administer haircuts — deduct the market value — on non-performing loans.

Zulkifli said he could not estimate the rate of recovery of Rp 32 trillion in uncollected loans as the company will have to study each lone individually. “It has to be analyzed per debtor,” he said.

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. Lenders can also sell the debt.

Fitch Ratings said last week that the ruling would benefit state-owned banks.

Another benefit, according to the agency, is a gain from their inherited non-performing loans that have been written off.

“This could bolster their core capitalization to maintain rapid loan growth amid limited fresh capital,” Fitch said on Thursday.

The ratings assessor calculated such recoveries could improve state lenders’ capital adequacy ratios by an average of 2 percentage points.

It estimated that the combined value of uncollected loans held by state lenders was $9.5 billion, equivalent to 54 percent of their equity bases.