The government needs to seek a legal breakthrough to enable state-owned Bank Mandiri and Bank Negara Indonesia (BNI) to resolve their non-performing loan problems and thus avoid another crisis in the country's banking industry, analysts say.

"The finance minister must have the courage to come up with an outside-the-box scheme to help Mandiri and BNI, and give the go-ahead to their plans to set up a debt management agency," senior banking analyst Djoko Retnadi told The Jakarta Post on Wednesday.

"And this has to be supported by the President and the House of Representatives so as to prevent possible political implications in the future," he added.

Bank Indonesia, the banking industry regulator, has approved the two banks' plan to jointly establish a special purpose vehicle to resolve their non-performing loan (NPL) difficulties.

The plan, however, faces an obstacle in the form of the 2003 State Finances Law and a current finance ministry regulation, both of which operate to prevent state firms from writing off debts or selling assets without the consent of the finance minister.

Similarly, Aviliani, a banking analyst from the Institute for the Development of Economics and Finance (INDEF), urged the government to quickly approve and carry out the plan for the sake of the country's banking sector.

"The choice now is to quickly settle the NPL problem by selling off borrowers' collateral through the agency, or to continue allowing the matter to linger, and thereby risk another collapse in the industry," she said.

Bank Mandiri -- the country's second largest lender by asset value -- and BNI -- the third largest -- have seen an increase in their non-performing loans due to an accumulated legacy of unresolved debts and recent high interest rates, which have been causing problems for the entire banking sector.

Mandiri's gross NPLs as of last September stood at 24.57 percent of its total loans, up from 7.49 percent in the same period last year. The equivalent figures for BNI were 14.44 percent and 6.12 percent.

With the two lenders accounting for some 27 percent of the market, BI Deputy Governor Siti C. Fadjrijah admitted during a hearing with legislators earlier this week that the industry's average NPL ratio had risen to 8.3 percent, compared to only 4.84 percent if Mandiri and BNI were excluded.

Legislator Dradjad H. Wibowo suggested that the government issue an emergency government regulation to bypass the legal obstacles. The government would also need to provide the initial capital for the proposed special purpose vehicle, Djoko said.

Meanwhile, commenting on the fact that Mandiri and BNI are now subject to special monitoring by the central bank due to their high NPL levels, Djoko said BI must clarify the situation to prevent possible runs on the two banks in the wake of the recent bad publicity.

"BI must explain that monitoring does not mean the banks are no longer allowed to extend loans, or that borrowers will face difficulties in settling their debts," he said.