The following passage was the most important : “Shariah banks have asked that loans that are still current can be restructured,” Mulya Siregar, director of Islamic banking at the central bank, said in an interview in Jakarta yesterday. “We’re having intensive discussions and will make a decision by the fourth quarter at the latest.” Current regulations issued in 2008 only permit terms to be altered once debt turns non-performing, Siregar said."
The basic idea would be so that Islamic banks could "anticipate" and restructure debt that could become non-performing or even restructure debt for other reasons (economic, financial ...).
This suggests that the banks expect / fear a flooding of non-performing loans and want apparent restrictive regulations to be altered in due time. The official version is however that the review is not caused by present (or near future) problems, since the news continued: "Non-performing loans at Indonesia’s Islamic banks fell to 3.89 percent of total lending in June, from 4.39 percent in the same month a year earlier, according to the central bank’s website. That’s more than the 2.98 percent ratio for troubled loans at the nation’s non-Islamic commercial banks, slowing from 3.94 percent a year ago.
“Allowing banks to restructure early would help them focus on giving loans,” Teguh Hartanto, an analyst at Indonesia’s state-owned PT Bahana Securities, said in an interview from Jakarta today. “Credit quality can deteriorate easily in a bad economic environment, forcing banks to curb lending as they have to maintain or even increase capital to support the higher NPL level.”
The non-performing loan ratio could climb to 4.7 percent if economic conditions deteriorate by 25 percent, the central bank said in a report on Indonesia’s financial stability in March. (bold from author)
Indonesia needs to offer tax incentives to attract investors who don’t use religion as a basis for making investments in order to expand Islamic financial services, Fauzi Ichsan, an economist at Standard Chartered Plc, said in an interview from Jakarta yesterday."
Hartanto of Bahana Securities is talking about restructuring of non-performing debt (suggests problems now), the report of BI is talking about a doomsday scenario of a deterioration of 25 % economic conditions in the (near) future (!?) and Ichsan of Standard Chartered just wants flexible regulations.
Fact is that the restructuring of existing Islamic compliant debt is not that easy. Extension of payment conditions against mark-up / cost for late payment easy amounts to "riba" and renewal could lead to debt-novation, read : a new "money loan" that probably contains "riba".
Malaysia has some experience in this specific area (restructuring non-performing sukuk and non-performing Islamic loans). It could be a good idea to have a look there to regulations and practices. For the moment, I do not know exactly what is happening and why. I will keep my eyes open for you.
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