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The
Jakarta Post, Jakarta
High
Bank Indonesia interest rates, slow progress
in debt restructuring and slackening economic
growth created bleak prospects for the country's
banking sector over the remaining two months
of the year, analysts said on Wednesday. Hans
Anggito, senior analyst at Kim Eng Securities,
said economic conditions had remained unfavorable
for banks seeking an upturn in the fourth quarter
of this year. "Banks' third quarter reports
haven't come out yet, but judging from our economic
conditions I would say they aren't good, nor
is the outlook for the last quarter (of this
year)," he said. High interest rates, and slowing
gross domestic product (GDP) growth put a lid
on banks' lending capabilities, he explained.
Hans said Bank Indonesia's interest rates were
on average higher than rates last quarter. This
situation made lending for investments more
expensive, making it difficult for banks to
expand their loan base. "I think at the moment
the average bank's LDR (loan to deposit ratio)
stands at 20 percent. At 1997 pre-crisis levels,
they could reach as high as 80 percent," he
explained. Falling short in loan expansions,
many banks turned to investing in the much safer
promissory notes issued by Bank Indonesia known
as SBIs. SBI rates have been rising since early
this year, hovering at above 17 percent over
the past few weeks, compared to around 12 percent
at the beginning of the year.
Other
than SBIs, most of the heavily recapitalized
banks also rely on interest payments from government
bonds. Bank Indonesia keeps its SBI rates high
to absorb liquidity from the money market that
could otherwise be used to speculate against
the rupiah. But this measure results in higher
lending costs, as banks adjust their credit
rates in line with the SBI rates. Consequently,
borrowing has become too expensive for many
firms. Given the slow debt restructuring process
under the Indonesian Bank Restructuring Agency
(IBRA), banks also lacked good assets to invest
in, he added.
Among
other things, IBRA was set up to restructure
non-performing loans that it took over from
struggling banks hit by the 1997 financial crisis.
Once restructured, the loans are supposed to
be rechanneled into the banking sector. However,
progress has been slow. To have banks again
take up their restructured loans, Hans said,
was vital to revive the banking sector's intermediary
role in the economy. Senior economist Hendri
Saparin of the Advisory Group on Economics,
Industry and Trade (Econit), said she saw no
signs of significant recovery in the banking
sector.
She
said as long as the industry remained fragile,
the performance of the banking sector would
be unlikely to improve significantly in the
near future. The government's decision to shut
down unfit banks was necessary, but could have
been avoided if it had taken a more comprehensive
approach. "Instead of coping with the issue
on a case by case basis, we should seek and
implement a comprehensive solution," The government
does aim to consolidate more banks and make
them stronger, but the plan is progressing slowly.
Hendri suggested that aside from mergers, the
government must also categorize banks according
to the scope of their operations.
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