TEMPO.CO, Jakarta - The Bakrie conglomerate never seems to tire of stealing the public spotlight. This time, it is not about the performance of the soccer clubs that the family owns, but an old problem returning over and over again: massive debts.
Visi Media Asia (VIVA), a Bakrie-subsidiary media company comprising TV One, ANTV and news website Vivanews.co.id, has asked for a loan to the tune of Rp2.5 trillion from government-owned lender Bank Negara Indonesia (BNI) to restructure its debt with a Credit Suisse syndicate. The debt is huge: US$220 million. BNI then asked Bank Rakyat Indonesia (BRI) in addition to regional banks and Credit Suisse to establish a new syndicate. In principle, the banks' directors agreed to provide VIVA with credit repayable within a 7-year period at an interest rate of 12 percent.
At first glance, there is nothing irregular about this request. As an intermediary institution, the banks play an important role in gathering public funds and channeling them towards those who need funds. With cautious management by the banks, the economy will grow. Conversely, arbitrary management, as has happened in the past, could trigger a crisis that can shake the very foundations of the national economy.
BNI should bear this in mind when considering VIVA's loan request. Application for such large loans should be viewed prudently from a banking business perspective, away from all political interests. But what should have been a regular business transaction is ending up as an extraordinary problem.
Many believe the process of agreeing to the loan was not prudent. The BNI directors and the syndicate ignored the recommendation of a team of analysts to reject the VIVA request, even though the bank usually takes this team's advice when reviewing loan requests.
The reasons given by the analysis team are worth reconsidering. First, the Bakrie Group has a poor reputation for debt repayment, as it often borrows from one party to repay another. Secondly, it is predicted that the imminent arrival of the digital TV business will likely hit hard the business prospects of the analog TV stations under the VIVA umbrella, reducing its capacity to service future loans. According to VIVA's 2015 financial report, its gross income last year was Rp2.1 trillion, down Rp170 billion from the previous year.
BNI, BRI and the regional banks should learn from the foreign banks that had previously rejected the Bakri group's loan request. The state-owned banks should critically study the detailed objections of these foreign banks, given the size of the loan being considered.
The problem is that if the loan goes bad, it will become the start of a major problem for the economy, namely a crisis. We have not forgotten the two major crises of the past twenty years. Both were sparked by unhealthy credit management, which then forced the state to pay out huge sums to save the national economy. During the 1998 crisis, the government paid out around Rp600 trillion to bail out 48 banks, while in 2008, the Savings Guarantee Board (LPS) bailed out Bank Century to the tune of Rp6.7 trillion.
At present, the national banking system is not in good health. The problem credit ratio reached 2.8 percent in the first quarter of this year, four percent higher than in same period last year. The banking risk reserve fund has risen almost 40 percent compared to the previous year, reaching Rp126.62 trillion.
BNI, according to the latest calculations, has a problem loan ratio of almost 3 percent. Most of it consists of corporate debts.
Being cautious does not mean closing off credit altogether. The banks should always try to increase their loans, particularly to fund companies in order to create a virtuous circle that drives economic growth. However, BNI and the banks in the syndicate need to be cautious.
The banks' managers must ensure that the decision to grant the loan is based on a comprehensive feasibility study. This analysis should consider the character of the prospective borrower, its ability to manage the business, aspects of capital including feasibility and liquidity level and the general economic situation. Most importantly, the bank must calculate the collateral offered in return for the loan. With such a huge loan, the Financial Services Agency (OJK) should take preventive measures and monitor tightly the loan repayment, so it is not forced to act hastily should problems arise.
In this nation, credit scandals involving national banks usually occur as a result of colluding political interests of the powerful with the business sector. BNI experienced this with the Texmaco bad loan. Such a grim history must not be repeated. (*)
Read the full story in this week's edition of Tempo English Magazine