Delinquent debtors in Indonesia: Pay up or we’ll print
All banks have to deal with non-performing loans (NPLs) and delinquent debtors. In Indonesia, a market with weak bankruptcy laws, rampant corruption and family-controlled corporations, the problem is serious.
So serious in fact that the head of the country’s largest bank by assets, Bank Mandiri, has taken a highly controversial route to get his bank’s money back. In June, Agus Martowardojo, Mandiri’s CEO, listed the bank’s 30 largest delinquent debtors in an effort to name and shame them into action.
Mandiri’s loan problems are dire: NPLs at the end of 2005 were 26.5% of total loans and more than 14% on a net basis. The government says they should be no higher than 5%.
The divulged debtors account for 60% of Mandiri’s NPLs. While bank management has offered to assist recalcitrant debtors to repay loans, it has also promised to sue if they don’t.
Although the bank says it is mindful of the potential damage caused to the bank’s reputation by the actions, it feels it has little choice given the financial situation. In any case, says management more cheerfully, since being named, some of the debtors have already begun paying money back.