Indonesia's Bank Mandiri has been tied to securitizing bad loans in the past week. The state-owned bank - Indonesia's biggest in terms of assets - is exploring securitization and asset sales among other efforts to bring its non-performing loan ratio in line with the 5% level stipulated by the Central Bank.
At the end of 2005, Mandiri's official net NPL ratio hit 7.49%, approximately $900 million. However, when factoring in distressed loans -those that have not been written off completely -analysts say the figure could be over three times that amount.
Additionally, with one of the bank's major borrowers - textile company PT Great River - having its shares suspended after failing to meet obligations on a bond, Mandiri's NPL book is likely to rise in the short-term.
With the situation critical, Mandiri is believed to have approached several local investment banks - including the Indonesian offices of foreign houses -to come up with solutions. The bank has publicly announced it wants to comply with central bank regulations by the end of 2007 and to realize 40% of the face value of the assets.
According to sources, the most obvious first step will be for the bank to establish a special purpose vehicle to manage the assets, taking them off the bank's balance sheet. Following this, the bank can decide which resolution options best meet its targets.
It is unlikely the bank will face much government opposition, with senior ministers stating the situation is hindering the ability of banks to originate new loans to support economic growth. Consequently, the Ministry of Finance is due to announce its own measures to resolve NPLs held by state-owned banks as part of a wider financial reform package.
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