Banker disputes forecast on lower interest rates<\/p>\n
JAKARTA (JP): Economist Sjahrir's expectation of lower bank
\ninterest rates next year because of lower inflation were
\ncontradicted yesterday by banker Trenggono Purwosuprodjo who
\nwarned tight monetary policy would slow any credit expansion.<\/p>\n
\"Theoretically, credit interest rates should decrease next
\nyear because the inflation rate should fall to less than 7
\npercent this year (from 8.65 percent last year),\" Sjahrir said
\nyesterday.<\/p>\n
But Sjahrir said there would be a time lag before credit
\ninterest rates declined by 2 to 2.3 percentage points from their
\ncurrent levels between 18 percent and 21 percent.<\/p>\n
He told a seminar on the 1997 economic outlook that lower
\ninterest rates would allow banks to lend more to businesses
\nbecause credit risk would be more manageable.<\/p>\n
But Trenggono, the chairman of the Indonesian Private National
\nBanks Association, cautioned that the rate of credit growth would
\ndecline next year mainly because of tight monetary policy.<\/p>\n
\"The increase in the compulsory reserve requirement (at the
\ncentral bank) from 3 percent now to 5 percent beginning next
\nApril will decrease the amount of loan funds by between 0.3 and
\n0.5 percentage points,\" he told the same forum.<\/p>\n
He said the prudential rulings which required banks to
\nincrease their capital adequacy ratios from 8 percent to 9
\npercent next September would also squeeze lending.<\/p>\n
Trenggono argued that as long as Indonesia's balance of
\npayments remained under pressure, the monetary authority was not
\nexpected to ease monetary policy.<\/p>\n
\"That means the banking industry should refrain from high
\ncredit expansion,\" he said.<\/p>\n
Trenggono estimated that the higher capital adequacy ratio
\n(bank capital against lending) would eat into banks' profit
\nmargins unless they could become more efficient.<\/p>\n
He, therefore, predicted that banks would prefer to lend to
\nhigh-margin sectors such as trading.<\/p>\n
He said high interest rates should not have become such a big
\nissue because businesses should operate with a sound debt to
\nequity ratio and tap into equity financing.<\/p>\n
\"The problem, though, is that enterprises in Indonesia, like
\nin many other developing countries, depend largely on loan
\nfunds,\" he said.<\/p>\n
Property loans<\/p>\n
Sjahrir warned about large numbers of potentially bad debts
\namong property developers because of weakening property demand.<\/p>\n
\"I think several banks have unsoundly lent too much money to
\nthe property sector which is vulnerable to a short boom-and-bust
\ncycle,\" he said.<\/p>\n
He considered that the Rp 50 trillion (US$21.35 billion) in
\noutstanding credits to the property sector was too big.<\/p>\n
\"Given the weakening demand for property, an estimated Rp 5
\ntrillion in bad credits in the property industry is quite
\nconservative,\" Sjahrir said.<\/p>\n
He called on the central bank to take preventive measures
\nagainst a possible credit crash in the property sector.<\/p>\n
\"Credits in the property sector are surely a potentially big
\nproblem in the banking industry,\" he said, warning that another
\nbank failure as big as Bank Summa (which went bust in 1992) could
\nhappen if adequate preventive measures were not taken
\nimmediately.(pwn\/vin)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banker-disputes-forecast-on-lower-interest-rates-1447893297",
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