NPLs Hamper Expansion of State-Owned Banks

 
Fitri Novia Heriani, Robert Sidauruk
 
There is yet to be a clear resolution to the debate regarding non-performing loans (NPL) of state-owned bank and the issue remains unresolved. While NPL is a common business risk for most privately-owned banks, for many board of directors of state-owned banks the problem is creating much trepidation about how to deal with such assets.
 
Any measures taken by the board of directors to address NPL, such as debt restructuring, may latter result in a claim for unlawful action if considered to result in financial losses to the State.
 
Dian Puji N. Simatupang, law lecturer from the University of Indonesia, argues that the approach of seeing NPLs of state-owned banks as a loss to the State has caused complexity and is based on a logical fallacy in understanding the status of the receivables of state/regional-owned enterprises (BUMN/BUMD).
 
This is worsened by the requirement to secure approval from the Minister of Finance, the President, or the House of Representatives, before the accounts receivables of state-owned banks can be reduced or written off.
 
“The over-regulation of accounts receivable of state-owned banks has created the procedures for allocating credit becoming trapped in red tape. As a consequence, the expansion of state-owned banks is limited,” said Mr. Simatupang during a national seminar on “Legal Perspectives on the Treatment of State Owned Banks’ Non Performing Loans”, in Jakarta last Wednesday.
 
In fact, Mr. Simatupang continued, state-owned banks assets cannot be considered as State assets, as loan agreements of state-owned bank are executed based on consensus between the parties to them pursuant to the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata) .
 
“From the perspective of State finances, the status of receivables of state owned banks cannot be categorized within the scope of State’s finances,” Mr. Simatupang explained.
 
There are at least three reasons to separate the accounts recievables of state owned banks’ from State’s finances according to Mr. Simatupang. First, the receivable accounts of banks are drafted and implemented pursuant to basic principles of contract law and banking law.
 
Next, accounts receivables of banks are not under the supervision of the Minister of Finance as the State’s treasurer. Finally, the settlement of state owned banks’ accounts receivable is undertaken solely by the banks, without any necessity to comply with prevailing laws and regulations on State treasury.
 
Likewise, Erman Rajagukguk, law professor at the University of Indonesia, explained that NPL are due to two main causes, either the respective bank failed to satisfy precautionary principles when granting a loan, or the debtor that is granted a loan has insufficient collateral.
 
However, regardless of the causes, NPLs of state owned banks should not be considered as State losses, particularly when the loan is secured by a collateral agreement,  a contractual matter.
 
“Funds derived from state owned banks are not State funds,” concluded Mr. Rajagukguk.
 
(hot/kc)