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February 10, 2009

Indonesia: Bad loans up 35% to $1.24bn in 2008

A soaring loan default in some economic sectors has raised questions over the severity of the impact of the global economic crisis on Indonesia, reported local daily The Jakarta Post Tuesday.

While Bank Indonesia insists that last year's nonperforming loans (NPL) were still manageable at 4 percent — less than the BI tolerance level of 5 percent — foreign-exchange commercial banks were the hardest hit by bad loans.

According to the newly released Indonesian Bank Statistics, total bad loans held by the commercial banks jumped by 35 percent to 14.3 trillion rupiah ($1.24 billion) in 2008, up from 10.6 trillion rupiah in 2007.

Banks under this category include, among others, Bank Central Asia (BCA), Bank Danamon, Bank CIMB Niaga, Bank Panin, Bank Internasional Indonesia (BII) and Bank Permata.

Businesses in the transportation, cargo storage and communications sector were the hardest hit, booking a more than twofold increase to 1.04 trillion rupiah from 431 billion rupiah, according to the report.

Other sectors suffering a downturn in business included construction, business services, trade and manufacturing.

“The overall increase in last year's NPL was mainly contributed to by the foreign-exchange commercial banks,” Anton Gunawan, Bank Danamon chief economist, said Monday.

“There were significant increases in the [transportation, cargo storage and communications] sector from March to April, and again in November to December last year.”

The report showed most business sectors under the foreign-exchange banks had suffered from the increase in bad loans since the fourth quarter of last year, soon after the US-led financial crisis swept through much of the global economy.

Analysts said the foreign-exchange commercial banks suffered the most because they were heavily exposed to global trade flows and currency exchange fluctuations.

“The foreign-exchange banks are bigger in terms of corporate activities, so it’s common sense for them to suffer heavier losses,” said Danareksa chief economist Purbaya Sadewa.

While Indonesia has yet to feel the full pinch of the crisis, the 2008 NPL figure has already shown, at least, the magnitude of the problem the country may face in the near future. BI forecast NPL level to reach 5 percent this year with more companies suffering from difficulties to repay their debts.

Purbaya urged BI and the government to act swiftly to deal with the situation, by immediately disbursing the pledged economic stimulus and lowering the interest rate.

The banking report also showed the overall NPL of the banking sector rose by only 0.2 percent to 41. 87 trillion rupiah last year, up from 40.77 trillion rupiah in 2007.

The ease in the bad loans were attributable to the NPL decline in state banks to 17.6 trillion rupiah from 23.1 trillion rupiah a year earlier.

Wholly owned foreign banks recorded a jump of more than double in bad loans for the manufacturing sector last year, to 2.25 trillion rupiah from 943 billion rupiah, according to the report.

Aceh and North Maluku provinces experienced the highest jump in bad loans last year, up by more than 100 percent.

The two provinces' economies depend heavily on consumption, with minimal agricultural and industrial production centers.

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