Credit crunch continues in local banking industry<\/p>\n
JAKARTA (JP): The amount of the loans being channeled by
\ndomestic banks remains far below the amount of their third-party
\nfunds, reflecting the lack of growth in the industry's lending
\nactivities.<\/p>\n
Bank Indonesia senior deputy governor Anwar Nasution said
\ntotal bank lending as of the end of August was Rp 267.62 trillion
\n(US$31.48 billion), compared to total third-party funds of Rp
\n525.40 trillion.<\/p>\n
\"We can say that there's an indication of a credit crunch
\noccurring in the domestic banking industry,\" he said during a
\nhearing with House of Representatives Commission IX for banking
\nand the state budget.<\/p>\n
\"The credit crunch trend is further confirmed by the declining
\nloan-to-deposit ratio (LDR) and adjustments to (investment)
\nportfolios made by the banks in the interbank money market and
\nSBI notes,\" he said, referring to the Bank Indonesia SBI
\npromissory notes.<\/p>\n
He said banks' LDR had dropped from 78.31 percent in December
\nlast year to 32.24 percent in August this year.<\/p>\n
He also said the amount of bank money invested in SBI notes
\njumped by Rp 7.28 trillion to Rp 79.52 trillion during the same
\nperiod.<\/p>\n
Although some banks have increased their new lending over the
\npast several months, total outstanding bank credits is projected
\nto decline to Rp 254.29 trillion by December this year, compared
\nto Rp 277 trillion at the end of December last year and Rp 545
\ntrillion in December 1998.<\/p>\n
He said the drop in outstanding bank credits was due to the
\nmassive transfer of nonperforming loans to the Indonesian Bank
\nRestructuring Agency.<\/p>\n
Local cash-strapped businesses and legislators have been
\ncalling on the central bank to push domestic banks to lend more
\nof their money to the real sector.<\/p>\n
A credit crunch normally refers to a condition where banks are
\nforced to cut back their lending, particularly to cool down an
\noverheating economy.<\/p>\n
But the current credit crunch is more the result of abnormal
\nconditions caused by the financial and economic crisis that
\nstruck the country in the middle of 1997.<\/p>\n
Anwar said banks could not resume their normal lending
\nactivities because the restructuring of the country's corporate
\nsector, which owes a massive amount of bad debts, had yet to be
\ncompleted.<\/p>\n
\"Most banks also think the default risk is still high because
\neconomic conditions have not yet recovered due to various
\nfactors, including social and security conditions ... ,\" he said.<\/p>\n
Anwar said banks preferred to invest their money in the
\nrelatively risk-free SBI notes.<\/p>\n
\"In an environment of a relatively high default risk, then SBI
\nis the safest investment alternative, although banks will not
\ngain much margin,\" he said.<\/p>\n
Anwar said some banks had difficulty expanding their lending
\nbecause they needed the cash to ensure they could meet the
\nminimum capital adequacy ratio (CAR) requirement of at least 8
\npercent by the end of next year.<\/p>\n
CAR is the ratio between capital and risk-weighted assets.
\nThe current minimum CAR requirement is 4 percent.<\/p>\n
Anwar added that although some banks were ready to channel
\nloans to those companies which had been restructured by IBRA, the
\nnew lending was made impossible because it would cause the banks
\nto violate the legal lending limit.<\/p>\n
Anwar said some banks had started lending to new customers,
\nbut the loans were limited to credit for consumption and credit
\nfor small and medium-scale enterprises. He added that these loans
\nwere less significant to overall lending portfolios.<\/p>\n
He also said some foreign banks operating in the country had
\nseized the opportunity provided by the absence of local banks in
\nthe credit market, and were channeling badly needed working
\ncapital to local cash-strapped companies, particularly exporters.<\/p>\n
Discussing the interest rate on the SBI notes, Anwar said the
\nbenchmark interest rate on the one-month SBI note would be
\nmaintained at between 13 percent and 14 percent in a bid to help
\ncurb inflationary pressure from the recent increase in domestic
\nfuel prices.(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/credit-crunch-continues-in-local-banking-industry-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}