Banking/Finance - Push to pass law on sales of written-off loans - Deutsche Bank

According to an article today in Kontan, Indonesia's Directorat General for State Assets (DJKN), under the Ministry of Finance, stated that the government is accelerating the completion of the draft law pertaining to the management of states' receivables, which would separate SOE banks' assets (including written‐off assets) from those of the state.


The govt aims to have the draft laws completed and approved by the parliament this year. If approved ‐ which, in our opinion, would be a major step forward for Indonesian banking sector ‐ it would replace current law No49/1960, which has been inhibiting SOE banks from accelerating the divestment of their written‐off loans. Essentially, the change would allow SOE banks to provide haircuts to their written‐off loans ‐ paving the way for speedier asset recoveries.

As of 2010, the combined written off loans for BMRI, BBNI and BRI reached Rp64.4tr ‐ representing some 60% of their combined equity. In other words, a 10% recovery would uplift equity base by approx 5%. Mandiri has written off loans amounting to Rp33tr (or 84% of equity in 9M10); followed by BNI (Rp16tr or 48% of equity in FY2010) and BRI (Rp15tr or 47% of equity in 9M10) ‐ see table below for details. On a relative basis, we argue that BRI would benefit most from an acceleration of asset recoveries primarily due to its lowest CAR of 13.6% ‐ compared to the sector average of 16‐17%.

The change in the law would be one of the catalysts for SOE banks; and would be another reason to reiterate our BUY ratings on BBNI/BMRI/BBRI.