[Kabar-indonesia] JP & Tempo: Saving Bank Mandiri [5 reports: Public Shaming of Debtors]

[JoyoNews at aol.com]

5 reports: 

- JP Editorial: Public Shaming of Bad Debtors 

- Tempo Opinion: Tackling Rogue Debtors 

- Tempo: Saving Bank Mandiri

- Tempo: Empty Promises 

- Tempo: Agus Martowardojo: I am 
  backed by the government 

The Jakarta Post
Tuesday, June 20, 2006

Editorial

Public Shaming of Bad Debtors 

It was a bold move by state-owned, publicly listed Bank Mandiri to reveal 
last week the names of its biggest uncooperative debtors. But it put the 
country's largest bank at the risk of losing corporate clients and scaring off 
potential big customers.

But that risk was one worth taking, as this move will help the bank cope with 
recalcitrant borrowers and big debtors who fail to show good faith in serving 
their debts or negotiating workouts on them. The disclosure of the bad 
debtors didn't violate any provisions of the banking secrecy principle. Banking 
secrecy focuses on bank's liabilities (private savings or deposits). The 
revelation should be welcomed as an example of high standards of transparency and 
accountability on the part of a publicly listed bank. 

Such a public shaming of debtors, like a lawsuit, should only be the last 
resort in imposing strong public pressure on debtors to be more cooperative in 
settling their debts. 

Bank Mandiri, together with state-owned Bank BNI, the country's second 
largest bank, accounts for the bulk of non-performing loans (NPLs) in the banking 
industry. Mandiri seems to have been frustrated by the uncooperative attitudes 
of its 30 biggest debtors, who hold Rp 27 trillion (US$2.7 billion) in NPLs. 
These bad loans account for more than 26 percent of its total lending and are in 
excess of the maximum 5 percent level set by the central bank. 

The level of its NPLs has not yet in any way threatened Bank Mandiri's 
solvency, as it has a capital adequacy ratio (against total assets) of 24.5 percent, 
far higher than the minimum 8 percent required by Bank Indonesia. 

However, the high rate of NPLs at Bank Mandiri could further choke the 
economy with a tighter credit crunch, in view of its role as the largest bank. The 
tightening of the monetary stance by Bank Indonesia since last November to cope 
with strong inflationary pressures has not only deeply hurt businesses but 
also increased the risks of many loans turning sour as most companies have to 
struggle with higher costs. Businesses have been facing bigger downside risks 
due to high interest rates and a slowing economy. 

Credit risk is certainly one of the biggest inherent concerns in banking 
operations, especially under the current tight monetary stance, as companies are 
exposed to high risks of falling earnings. No wonder this risk requires the 
most careful analysis. That is why credit assessment is always a vital component 
of Bank Indonesia's supervision of commercial banks. 

Needless to say, it is imperative the central bank steps up its supervision 
of state banks to ensure they properly implement effective management of risks 
related to loans and interest rates. More stringent supervision will enable 
the central bank to act immediately or, if necessary, take contingency measures. 
In this context, we welcome the central bank's recent initiative to put both 
Bank Mandiri and Bank BNI under special supervision. 

The latest World Bank report on the Indonesian economy also issued a strong 
warning of the doubling of NPLs in the banking industry, which it blamed mostly 
on the steep increase in bad loans at Bank Mandiri and Bank BNI and 
reiterated the importance of improving governance and market discipline at these banks. 

While strengthening the central bank's oversight of state banks' management 
and loans practices is most imperative, this is not enough to enable state 
banks to address their bad loans. The amendment of regulations to enable state 
bank managements to give discounts on bad loans should be accelerated, otherwise 
they will continue to prevent state banks from expanding their lending 
operations. 

Most debt restructuring requires both discounts either in principal or 
interest payments to make debts sustainable and new working capital loans to enable 
debtors to resume or expand their operational capacity. 

Most importantly, state banks and the central bank must put in place 
clear-cut loan-workout procedures with high standards of transparency and 
accountability to ensure sound loan practices. 

However, the government could greatly help prevent most loans from turning 
sour by reducing the risks and the regulatory and bureaucratic costs of doing 
business in the country. Hence, the key, as the World Bank stressed in its 2006 
report on Indonesia, is good governance in the public sector. 

------------------------------------

Tempo Magazine
No. 42/VI
June 20 - 26, 2006 

Opinion 

Tackling Rogue Debtors 

Publishing the names of non-compliant debtors in the media should have 
a deterrent effect. But tackling the problem at the source is more important. 

LAST week's publication of the names of people who failed to repay their Bank 
Mandiri loans takes us back to the past. Seven years ago, the Indonesian Bank 
Restructuring Agency (IBRA) did the same thing. 

Perhaps the intention was good. Not only would the loans be repaid, but the 
debtors would be shamed into learning a lesson. But this good intention should 
not end in the same way as IBRA's efforts. Not all the debtors were taken to 
court, and the few that made it to trial were able to beat IBRA. And even more 
worrying, IBRA then gave these problem borrowers large discounts on their 
repayment obligations. 

History may be repeating itself here. Publicly naming Bank Mandiri problem 
debtors could be the initial step in introducing a new government policy to be 
announced this month. Government Regulation No. 14/2005 will be revised to 
allow state banks to offer the same debt reductions offered by private banks. 

Banks, like other business entities, are not free of risk. Therefore, they 
should be flexible in order to reduce losses, for example by giving debt 
reductions. But the question is whether this will give state-owned banks the means to 
solve the problem of non-performing loans. 

Not necessarily. What people often forget is that non-performing loans do not 
happen merely because of changing macro-economics or because of bad debtors, 
but also because of the banks' poor management. History has shown us that 
hundreds of trillions of rupiah worth of state bank non-performing loans-in the 
hands of only 20 tycoons-were already flawed when they were turned over to IBRA. 
Funds were paid out without proper checks on their feasibility or guarantees. 
It is now known that state banks contributed Rp300 trillion, or almost half, 
of the approximately Rp700 trillion lost as a result of the financial crisis. 
It is beyond belief that the bankers responsible for this catastrophe were 
never investigated. 

Bank Mandiri, which contributed Rp150 trillion, is now facing the same 
problem. Their non-performing loans total Rp27 trillion-almost half of the entire 
amount presently in the banking system. With this figure, Bank Mandiri's credit 
ratio stands at 26.2 percent-far higher than the maximum 5 percent set by Bank 
Indonesia. 

There are external factors causing this, such as the rise in oil prices and 
the change in regulations concerning non-performing loans, but half of the 
problem loans are held by just six major borrowers. And these six are all former 
patients of IBRA. 

This phenomenon shows that the problem of non-performing loans will keep 
recurring if the government only tackles the problem once it has become serious. 
Canceling non-performing loans is easy, but strengthening the source by 
imposing tougher conditions on credit, including guarantees, will produce much better 
results. 

But this will not be easy because the government functions as an owner as 
well as a regulator. There are frequent conflicts of interest. A good and 
effective solution would be to sell off some of the state banks. But if this proves 
too difficult-perhaps because the government insists on keeping banks to pay 
for infrastructure projects-another way must be found, for example by 
establishing a special ombudsman to oversee operations of state-owned banks. 

Non-performing loans may never reach zero percent. But we hope the number of 
loans flawed from the start can be considerably reduced. With a 
start-to-finish policy, the publication of rogue debtors' names will hopefully be effective 
in reducing the number of non-performing loans. 
 
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Tempo Magazine
No. 42/VI
June 20 - 26, 2006 

Saving Bank Mandiri 

Bank Mandiri has taken a bold step in divulging names of big debtors. 
But the move must be accompanied by other firm steps. 

AGUS Martowardojo is starting a new tradition for the Indonesian banking 
industry. Last Wednesday, courageously, the CEO of Bank Mandiri took a measure 
that had so far been considered taboo by bankers: announcing the names of big 
debtors in arrears in their loan installment payments. Traditionally, such a list 
is kept highly confidential by the board of the directors. It is as if the 
people who are also shouldering the burden of financing bank recovery do not 
have the right to know what illness is attacking a bank. It is only afterwards, 
two or three years down the line, that they will suddenly discover that loans 
in the trillions of rupiah have been "purged" from the bank's balance sheets. 

Perhaps Agus' determined step is not to satisfy the public's curiosity. He 
does not have any obligation to do that. Agus has another target: saving Bank 
Mandiri from the increasingly disquieting danger signals. The largest bank in 
Indonesia with assets of Rp255 trillion turns out to carry non-performing loans 
worth Rp27.5 trillion. This is the equivalent of 26 percent of its total loans 
(of Rp105 trillion) or five times above the safe limit tolerated by Bank 
Indonesia. By posting the "taboo list" Agus hopes that the debtors will feel 
ashamed and will strive to find ways to settle their obligations. 

Non-performing loans are installments that have not been paid for more than 
three months or 181 days. If not immediately dealt with, conditions will 
deteriorate; and just as an artery clogged by cholesterol must be removed by a 
bypass operation, so must NPLs be removed from the bank's bookkeeping records. The 
procedure is painful: the bank's capital must be used to do so. 

For Mandiri, such an operation may not drive the giant bank to collapse. With 
capital of nearly Rp25 trillion, Mandiri has enough of a cushion. According 
to its 2006 first quarter report issued at the end of May, Mandiri's capital 
adequacy ratio (CAR) on risky assets has reached 24.5 percent, much better than 
the international requirement of 8 percent. 

However, bad loans are not just concerned with a bank's health. There is 
something far more important: NPLs threaten the economy in its entirety. Prior to 
cleansing itself of them, it is impossible for Mandiri to disburse loans to 
other potential debtors. Consequently, business units that can accelerate the 
economy are currently unable to move due to lack of financial support. And don't 
forget, six years ago Mandiri was totally cleansed. All its cholesterol was 
removed and it received a capital injection of more than Rp100 trillion. Until 
today, its overhaul costs are still being carried by the Indonesian people. 

To stop the danger signals from dragging, the names of the debtors had to be 
broadcast to the public. The bad debts of Rp27 trillion turn out to be 
incurred by only 30 debtors. Six of them are: Raja Garuda Mas (owned by Sukanto 
Tanoto), Argo Pantes (The Nin King), Domba Mas (Susanto Liem), A-Latief Corp 
(former Minister of Manpower Abdul Latief), Kiani Kertas (Prabowo Subianto), and 
Djajanti (Burhan Uray) business groups with total bad debts of Rp13 trillion (see 
table). Besides Argo Pantes that has paid some of its installments, Agus 
included five other big debtors under the category of "not yet having good will." 

According to Agus, there are several indications of the "bad intentions." 
Among them are misusing bank loans, allowing a company to go bankrupt, refusing 
to inject additional capital despite ability, and refusing to improve the 
weakness in the loan agreements made in the past. Agus cited Raja Garuda Mas as an 
example. To facilitate its debt repayments, Bank Mandiri requested the pulp 
company to double its debt installments. In Agus' calculations, Garuda Mas 
should be able to do so because the pulp price in the international market 
continues to soar. But Garuda refused. "It is not easy to transfer group profits to a 
subsidiary that has debts," so reasoned President Director of Raja Garuda, 
Ibrahim Hasan. 

It must be admitted that, when it comes to bad loans, big debtors seem to 
have the upper hand. They know very well that the bank may decide to confiscate. 
However, because banks do not have any expertise in plant management, they 
will experience great difficulties if they take over and run the business' daily 
operations. To prevent plummeting prices, a factory must continue its 
operations, purchase raw materials, pay suppliers, pay worker salaries, and so on. 
Consequently, banks are often forced to take the most practical measure: the 
confiscated business is hastily sold. This is the crux of the matter: credit 
thieves often deliberately allow their businesses to be confiscated in the hope 
that they can buy back the assets when they are auctioned off at discounted 
prices. 

NPLs are certainly not only due to bad debtors. Bank officials also play a 
role. The simplest signal can be seen in the "aggressive" credit disbursement 
allocations. Granting more than Rp13 trillion in loans to six debtors only, 
although not a violation of the maximum lending limits, shows the "boldness" of 
Bank Mandiri officials. 

Another question: why is the handling of the NPLs allowed to drag on this 
long? In May of last year, the bad credit ratio was still relatively safe, only 7 
percent. In less than a year, it has erupted to 26 percent of the total 
credits or, if calculated nominally, it is the equivalent of half of the total NPLs 
of all banks in Indonesia. 

This astounding increase indicates reckless asset management. Large credits, 
especially in the trillions, are never given at once. Usually, each 
disbursement stage is accompanied by a debt agreement. If it is violated, the credit 
will be terminated; if necessary, the debtor is declared bankrupt. This prudent 
step can actually be imposed on A-Latief Corporation, for example, which 
initially sought (among others) the construction of a mini studio. When it was not 
constructed, Bank Mandiri officials should have used the debt agreement as a 
weapon. 

The same strategy could have been imposed on Kiani Kertas. When the credit 
assets of Rp1.87 trillion were taken over by Mandiri from the Indonesian Bank 
Restructuring Agency (IBRA) in November 2002, there were several requirements 
that Prabowo Subianto had not met. For example, working capital injection to 
operate the Kiani pulp factory. When no capital was injected, Mandiri should have 
immediately taken safety measures. Unfortunately, as Agus admitted, the 
bank's position was indeed weak when the initial agreement was made. The problem 
is, Kiani has not responded to the request to improve the agreement. 

Agus does not deny bank officials' negligence. That is why, within one year 
since he occupied the number one seat in Bank Mandiri, he claims that he has 
fired around 50 employees of the giant bank for not applying the principles of 
prudence. The penalty of firing is not applicable to employees at the bottom 
only, but also "higher officials." Whether or not there is any connection to 
this penalty, all members of the board of directors in Mandiri since the end of 
last May are new. 

However, NPLs is not just a matter of firing bank officials and divulging the 
names of debtors. In certain cases, government officials also play a role in 
encouraging NPL growth. In today's reform era, there are still credits that 
are "assignment" in nature or are granted due to "political" reasons. Using the 
excuse of supporting the growth of a particular region or absorbing the 
unemployed in labor-intensive projects, for example, credit in the trillions was 
perforce disbursed by a government bank without making the necessary study of the 
business' viability. 

People must realize that the era of such economy on command is past. 
Increasingly tight competition requires correct and efficient resource allocations. 
Every leak and error in resource allocation will have to be paid by the entire 
economic system. For that reason, such political credit practices must 
immediately be discontinued. 

In addition, bankers must start preparing "blueprints" of an ideal financial 
industry future. In the future, big credible business should not seek loans 
from banks but from capital or obligation markets. Banks need to concentrate on 
consumer loan disbursement and small- and medium-sized business loans. 

Agus will not stop here. He is waiting for a more powerful legal weapon: a 
revision to the government regulation which grants authority to state-owned 
banks to manage debts like private banks. With this regulation, banks can take 
firmer measures against bad debtors. "Basically, they'll not escape the long arm 
of the law," he said. 

Will the new tradition started by Agus be followed by other bankers? "We'll 
wait and see," said an officer at a government bank, "if it's effective, we'll 
follow suit." 

-- Yura Syahrul, Suryani Ika Sari 

sidebar: Thumbs Down and Up 

Bank Mandiri has 30 big debtors who are the reason for bad debts. There are 
four categories: no good will, no good will yet, starting to have good will, 
and having good will. 

No good will yet 

Debtors // Line of Business 

Raja Garuda Mas Group Pulp 
PT Kiani Kertas Pulp 
Domba Mas Group Plantation 
Djajanti Group Forestry & Fishery 
A Latief Group Media & Agrobusiness 
PT Suba Indah Tbk. Food 
PT Garuda Indonesia Airline 
PT Semen Kupang Cement 
PT Anugrah Lingkar Selatan Property 
Batavindo Group Petrochemicals & Plantation 
PT Great River International Tbk. Textile 
PT Perkebunan Nusantara II Plantation 
PT Merpati Nusantara Airline 
Gunung Meranti Group Forestry 
PT Kertas KraftAceh Paper 

Start to have good will 

Debtors // Line of Business 

Bosowa Group Infrastructure 
PT Flora Sawita Chemindo Oleochemical 
PT Benang Sari Indahtexindo Textile 
Batam Textile Industry Textile 
PT Petrowidada Industri Chemical Industry 
PT Kalimantan Energi Lestari Mining 
PT Bina Mentari Tunggal Livestock 
Top Jaya Group Retail 
PT Sun Hope Investment Investment 
PT Bisma Narendra Infrastructure 
Argo Pantes Group Textile 

Have good will 

Debitors // Line of Business 

PT Budi Acid Jaya Tbk. Food & Chemicals 
PT Sulfindo Adi Usaha Chemicals 
PT APAC Inti Corpora Textile 

Source: Bank Mandiri Explanation, 14/6/2006 

Problem Makers 

SIX big debtors enjoy half of the total NPLs in Bank Mandiri. Vice President 
Director of Bank Mandiri, I Wayan Agus Mertayasa, says that if these six 
settle their obligations, the ratio of Bank Mandiri's NPLs will instantly dive to 
below 5 percent. 

Sukanto Tanoto 

* Company: Raja Garuda Mas Group 
* Obligation: 5,348 (Rp billions)* 
* Note: *Obligation (principal + interest) per 31 March 2006 
  
Susanto Liem 

* Company: Domba Mas Group 
* Obligation: 1,993 (Rp billions) 

The Nin King 

* Company: Argo Pantes Group 
* Obligation: 2,318 (Rp billions) 

Prabowo Subianto 

* Company: PT Kiani Kertas 
* Obligation: 1,871 (Rp billions) 

Abdul Latief 

* Company: A. Latief Group 
* Obligation: 892 (Rp billions) 

Burhan Uray 

* Company: Djajanti Group 
* Obligation: 827 (Rp billions) 
 
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Tempo Magazine
No. 42/VI
June 20 - 26, 2006 

Empty Promises 

Bank Mandiri collects promises from RGM and Domba Mas. 
It's time to share the profits. 

CALLING yourself "Mas" (gold) does not automatically mean that your business 
will always glitter like gold. The performance of Raja Garuda Mas and Domba 
Mas, for example, is anything but brilliant in the eyes of its creditor, PT Bank 
Mandiri Tbk. At least that was the latest evaluation by Agus Martowardojo 
last Wednesday. 

The CEO of Bank Mandiri is indeed anxious. From the total of non-performing 
loans-Rp27.1 trillion-owed to the state-owned bank, the majority turns out to 
be by big debtors who do not have any good intentions to settle their debts. 
Actually, said Agus, "If only five or six of these humongous debts were settled, 
Bank Mandiri's NPL level (currently at 26.6 percent) will would return to 
normal." 

According to its records, Raja Garuda Mas (owned by Sukanto Tanoto) and Domba 
Mas (Susanto Liem) are two of the top six debtors in the bank with assets 
worth Rp260 trillion. The other four are Argo Pantes (The Nin King), Kiani 
(Prabowo Subianto), A. Latief Corporation (Abdul Latief), and Djajanti (Burhan 
Uray). 

Agus' eyes are especially focused on RGM and Domba Mas, because the two 
business groups still have companies that remain stellar. Even Argo Pantes, whose 
business prospects are fading, is still cooperative: it is willing to surrender 
its land and building assets belonging to 11 of its business units as 
payment. 

Looking back, the two groups' cases have long been a controversy. With regard 
to Mandiri's credit to Domba Mas three years ago, for example, the Attorney 
General's Office-based on the Supreme Audit Agency's audit last year-had deemed 
it in violation of procedure. 

Domba Mas' debts started with the purchase of credit assets in the Indonesian 
Bank Restructuring Agency (IBRA) in the second semester of 2003. At that 
time, Mandiri bought the collection rights on PT Domas Agrointi Prima's debts (an 
oil palm company belong to Domba Mas Group) from IBRA at Rp1.8 trillion. This 
despite the fact that it was under the "not smooth" category. 

Afterwards, PT Domas received further loans from Bank Mandiri of US$79 
million to build an oleo chemical factory complex in Kuala Tanjung, Asahan regency, 
North Sumatra. However, the intention to start operating the factory in the 
third quarter of 2004 did not come to pass. Subsequently, loan payments to 
Mandiri were sluggish. 

For quite some time loud objections have been voiced by a non-government 
organization, Gerakan Rakyat Antikorupsi (Gerak). Domba Mas is actually a 
spectacle lens and frame producer with no track record in the oil palm business. 
However, Mandiri's board of directors under E.C.W. Neloe persisted in declaring the 
company problem-free. 

The controversy did indeed fade away with the emergency of a big name, 
Procter & Gamble (P&G). The giant producer and distributor of household necessities 
agreed to buy wholesale 200,000 tons of Domba Mas oleo chemical products 
(produced by PT Domas and PT Sawitmas Agro Perkasa) for 10 years, worth more than 
US$1 billion. 

The guarantee removed the doubts about Domba Mas. However, according to 
Managing Director of Bank Mandiri, Riswinandi, of the 11 Domba Mas subsidiaries 
with debts, only PT Domas had paid Rp890 billion last October. The remaining 
Rp1.99 billion is still a problem. 

The promise was for payments to resume in December 2005 (Rp285 billion) and 
March 2006. However, until today the promise has not been fulfilled. "That's 
why, we put it back in the group that has no good intentions," said Riswinandi. 

Subiyanto S.P., one of the Domba Mas directors, admits that payments to 
Mandiri are sluggish. However, according to him, this is merely due to inadequate 
company cash flow. He is convinced that once PT Domas starts 
production-targeted for the middle of this year-shareholders will pay the remaining balance of 
Domba Mas' debts. "We have a commitment and the good will to settle this," he 
said. 

What about Raja Garuda Mas? Up until now the paper and pulp producer is 
listed as having bad loans of up to Rp5.3 trillion at Bank Mandiri. These are part 
of a bank syndicate credit (including BNI, Panin, Niaga, and Danamon banks) 
worth a total of US$1.5 billion, or approximately Rp14 trillion, to several of 
its subsidiaries, including PT Riau Andalan Pulp and Paper, PT Riau Andalan 
Kertas, and PT Riau Prima Energi. 

RGM's installments to Mandiri are actually smooth, but because there is a bad 
loan in one bank, according to Bank Indonesia's regulations, it is 
automatically considered bad in all banks. What Mandiri high officials are questioning 
is the amount of installments that are considered no longer adequate. One of 
their guidelines is the soaring price of paper and pulp in world markets: from 
around US$400 per ton in 2002 to around US$700 in America's market today. 

Due to the soaring price RGM's revenues have reportedly reached US$1 billion 
per year. However, as explained by director of BNI, Tjahjana Tjakrawinata, 
only US$61.2 million is used to pay the debts (see Tempo, April 23, 2006 
edition). It is no wonder if Sukanto is freely spreading his wings to several 
countries, including China, Brazil, and Finland. 

Based on this, Mandiri's board of directors is asking RGM to increase its 
installments. Agus sets it at US$120 million per year. "Hopefully there'll be an 
agreement before the end of July," he said. Only with that will RGM re-enter 
the list of debtors with good will. 

Deputy head of RGM Indonesia, Ibrahim Hasan, rejects the label. His reason: 
payments of the principal and interests are being made according to schedule. 
With regard to installment increase, he asserted that it had been negotiated 
since the end of 2004. The question is, when will the negotiations be over? Who 
knows. Hopefully RGM's promise to pay its debts is not an empty one. 

-- Metta Dharmasaputra, Yura Syahrul, Suryani Ika Sari 
 
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Tempo Magazine
No. 42/VI
June 20 - 26, 2006 

Agus Martowardojo: I am backed by the government 

FOUR years after 'wandering off' to the Indonesian Bank Restructuring Agency 
(IBRA) and Permata Bank, Agus Martowardojo is finally­ re­­turning to this 
'home' bank. As of May last year, the 50-year-old Amsterdam, the Netherlands-born 
banker was appointed CEO of Bank Mandiri. A multitude of problems awaited 
him, foremost among them how to reduce the num­ber of non-performing loans (NPLs) 
in Indonesia's largest­ bank. Last year alone, Mandiri's problem credit­ 
ratio jumped close to 20 percent. 

Agus' time is practically spent on solving those problems. "I only get one 
day's leave," Agus told Tempo reporter Yura Syahrul in an interview last 
Wednesday. He was accompanied by his deputy I Wayan Agus Mertayasa and Special Assets 
Management director Riswinandi during the interview. Excerpts: 

Were you appointed to head Bank Mandiri specifically to solve the NPL 
problem? 

Yes. The change in mana­gement was triggered by those NPLs which were choking 
the bank. It's turning out that Mandiri has larger numbers of NPLs than 
initially reported. The NPLs reported had been 7 percent, but an audit of the 
central bank, Bank Indonesia, showed it was actually 19 percent. Today, the number 
has grown even higher, to 27 percent. I am here because the shareholders asked 
me to solve this monumental problem. 

The government must be quite upset over this? 

All the shareholders, regulators, the investors and the public are concerned. 
Why, they ask, isn't the problem going away, why instead is it getting worse? 
So, we asked the government to provide us with a legal tool that would enable 
us to have the same authority as private banks. This is to say, Bank Mandiri 
has been given the authority to independently solve the NPL problem, including 
issuing certain facilities in repaying loans.

Why is the problem so serious at Bank Mandiri? 

In reality, when the merger took place (Bank Mandiri is a result of a merger 
between the banks Bumi Daya, Bapindo, Bank Dagang Negara and the Indonesian 
Export-Import Bank-Ed.), all the problems had been handed over to IBRA. These 
NPLs are caused by three factors: new bad loans, new Bank Indonesia regulations 
placing tighter controls on transactions, and lastly, the worsening macro 
economic conditions. The reasons for Mandiri's NPLs are these three combined 
factors. 

How are negotiations with the debtors going? 

Some debtors have agreed to improve their credit situation. That means 
they're being cooperative. But that alone is not enough. Debtors must demonstrate 
good intentions. We have classified Mandiri's debtors into four categories: 
those with no good intentions at all, those whose good intentions have not yet 
surfaced, those beginning to have good intentions and those who have good 
intentions. 

What are the criteria of debtors with no good intentions? 

These are debtors who misuse the bank's funds and company owners allowing 
themselves to go bankrupt even though they are running other healthy businesses 
inside and outside of the country. Some debtors refuse to repay additional 
amounts to their loans, even though they can afford it. Then there are agreements 
or guarantees that carry illogical conditions. But when the debtors concerned 
are asked to improve these conditions, they refuse.

Were there or are there any Bank Mandiri employees involved in these bad 
debts? 

Action is taken on both fronts. If any employee is found intentionally 
weakening [the loan agreement], we take action against him. In 2005, we fired 35 
employees because of disciplinary actions. Until March this year, about 16 people 
were dismissed. Basically, anyone found doing something irregular must be 
punished. This applies to all levels.

Will action be taken against bad debtors? 

Yes, after the legal tool (the revised Government Regulation No. 14/2005-Ed.) 
has been issued, which is expected end of this month. We must be convinced 
that the views of the government, parliament (DPR), the Supreme Audit Agency, 
Bank Indonesia and the attorney general, are all the same. We will inform them 
that each debtor has a separate problem and they had different target dates to 
reach. If they don't show any good intentions towards their due date, we must 
take action against them.

When are their deadlines? 

We give them ample warning. Today we announce the debtors who have not shown 
any good intentions of repaying. The next day we start auctioning off their 
collateral assets. So, we start to given them warnings from now. (JoyoNote: The 
interview
is truncated...another question follows, but there is no answer)

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Joyo Indonesia News Service
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