Business remains promising despite some difficulties<\/p>\n
Rikza Abdullah, Contributor, Jakarta<\/p>\n
The high growth of domestic consumption has helped Indonesia's
\nmultifinance companies accelerate the pace toward recovery after
\nthe recent economic crisis devastated it, forcing a large number
\nof financial service companies to halt operations or even
\ncollapse.<\/p>\n
Data at the Ministry of Finance show that as of the end of
\nJune, out of the 245 companies licensed to operate in
\nmultifinance services -- including leasing, factoring, consumer
\nfinancing and credit card financing -- three had gone bankrupt,
\ntwo had been liquidated, 10 merged into five and two others no
\nlonger operated. In addition, the ministry had also revoked the
\noperational licenses of 14 others.<\/p>\n
Susilo Sudjono, chairman of the Indonesian Financial Services
\nAssociation (IFSA), said here on Thursday that out of the
\nfinancial service companies that still held licenses from the
\nministry, only about 30 percent to 40 percent were still active,
\nwhile the remainder did not show any business activities.<\/p>\n
According to ministry data, the country's financial service
\ncompanies enjoyed a combined net profit of Rp 923 billion in
\n1996, with total operational investments of Rp 26.58 trillion.<\/p>\n
In 1997, they managed to sharply increase operational
\ninvestments to Rp 38.03 trillion, but, instead of enjoying a
\nprofit, they suffered a combined loss of Rp 187.98 billion
\nbecause of the steep depreciation of the rupiah against the U.S.
\ndollar. The sharp rise of domestic interest rates after the start
\nof the economic crisis in July raised their debt servicing to Rp
\n39.18 trillion from Rp 24.01 trillion in the previous year.<\/p>\n
Their combined loss surged to Rp 4.66 trillion in 1998, as
\ntheir business activities declined drastically, with total
\ninvestments reaching only Rp 29.27 trillion. The business in the
\nfollowing year showed an improvement, enabling them to book a
\ncombined profit of Rp 539.62 trillion, even though their total
\ninvestments fell further to Rp 21.99 trillion.<\/p>\n
But they again suffered losses of Rp 2.39 trillion in 2000,
\neven though there was a 36 percent increase in their operational
\ninvestments to Rp 28.72 trillion.<\/p>\n
In 2001, they could again increase operational investments by
\nnearly 7 percent to Rp 30.04 trillion and at once reduce their
\ntotal losses to Rp 118.96 trillion. But could they improve their
\nperformance and start making profit from this year on?<\/p>\n
\"We are sure our operational investments will grow by a
\nminimum of 20 percent this year,\" Susilo told The Jakarta Post.<\/p>\n
According to him, for healthy companies, financial services
\nremain promising amid signs of the country's economy.<\/p>\n
He explained that the demand for financial services was now
\nvery high and the companies had been equipped with adequate
\ninfrastructure and networking.<\/p>\n
\"The most important thing is that they should concentrate more
\non the business segment where they have advantages,\" he added.<\/p>\n
Dennin Firmansjah, president of PT Saseka Gelora Finance, a
\nfinance company focusing its business on leasing, told the Post
\nthat the demand for leasing for heavy equipment, for example, was
\nvery high because construction of coal mines and roads had
\nresumed, while contractors had not replaced their equipment since
\nthe start of the economic crisis.<\/p>\n
\"The demand for barges, each worth Rp 5 billion and over, is
\nalso very high now,\" he said.<\/p>\n
Susilo, who is also president of PT Stacomitra Sedaya Finance,
\na company focusing on consumer financing, said consumer financing
\nwas now the most promising sector in the financial service
\nindustry.<\/p>\n
\"Some 60 percent of about 300,000 automotive vehicles are sold
\nin the country every year with credits provided by financial
\nservice companies and commercial banks,\" he said. \"And about 70
\npercent of approximately 2.5 million motorcycles are also sold on
\ncredit.\"<\/p>\n
According to ministry data, financial service companies'
\ncredits for leasing increased from Rp 12.12 trillion in 1996 to
\nRp 16.9 trillion in 1997 but fell to Rp 15.64 trillion in 1998
\nand to Rp 10.92 trillion in 1999 before rising back to Rp 13.39
\ntrillion in 2000 and to Rp 13.73 trillion in 2001. Out of the
\ncredits for 2001, 15.6 percent went sour.<\/p>\n
Meanwhile, their financing for consumer goods purchases rose
\nfrom Rp 6.36 trillion in 1996 to Rp 10.6 trillion in 1997 but
\nfell to Rp 5.24 trillion in 1998 and to Rp 4.32 trillion in 1999
\nbefore rising back to Rp 8.39 trillion in 2000 and to Rp 12.26
\ntrillion in 2001. Out of the credits for 2001, 2.1 percent went
\nsour.<\/p>\n
Dennis, who is also IFSA's vice chairman for industrial and
\nbusiness affairs, said the factoring sector had become less and
\nless attractive over the past years due to the decline in
\nindustrial activities in the country. Credit card financing by
\nfinancial service companies was also small because it required
\nheavy investment.<\/p>\n
Factoring by financial service companies steadily decreased
\nfrom Rp 10.09 trillion in 1997 to Rp 3.25 trillion in 2001, while
\ntheir credit card financing reached only Rp 431.89 billion and Rp
\n796.14 billion respectively. Out of the credits extended for
\nfactoring and credit card payments in 2001, 66.2 percent and 22.8
\npercent respectively went sour, according to Bank Indonesia in
\nits annual report.<\/p>\n
Susilo said a major problem encountered by financial service
\ncompanies was the scarcity of funds, which made it difficult for
\nthem to expand business.<\/p>\n
\"Our major source of funds is banks,\" he said. \"But banks,
\nwhich are still restructuring themselves, are reluctant to
\nincrease their credits to us.\"<\/p>\n
He said financial service companies were actually ready to pay
\nannual interest of some 18 percent, a level that would give a
\nhigh profit margin to banks.<\/p>\n
Domestic banks extended Rp 11.85 trillion in credits to
\nfinancial service companies in 1996, Rp 15.45 trillion in 1997,
\nRp 14.37 trillion in 1998, Rp 10.7 trillion in 1999, Rp 11.29
\ntrillion in 2000 and Rp 14.18 trillion in 2001, while credits
\nextended by foreign banks were recorded at Rp 9.17 trillion, Rp
\n19.27 trillion, Rp 16.39 trillion, Rp 8.57 trillion, Rp 7.42
\ntrillion and Rp 6.79 trillion respectively.<\/p>\n
\"We will encourage our member companies to raise fresh funds
\nby offering bonds to the public,\" Susilo said.<\/p>\n
Bank Indonesia says in its latest annual report that because
\nconsumer demand will remain strong this year, while the
\nintermediary function of commercial banks will improve, credits
\nfor consumption needs are expected to continue expanding.<\/p>\n
Total consumption increased by 6.2 percent in 2001 and is
\nprojected to further increase by a range between 4.3 percent and
\n4.8 percent this year.<\/p>",
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