Government warned negative spread a threat to banks<\/p>\n
JAKARTA (JP): The House of Representatives finance committee
\nwarned the government on Monday to immediately seek a solution to
\nthe negative spread problem threatening some of the country's
\nmajor banks.<\/p>\n
Benny Pasaribu, the chairman of House Commission IX for
\nfinancial and development planning affairs, said on Monday that
\nthe negative spread problem could erode banks' capital adequacy
\nratio (CAR) which in turn might force the government to spend
\nmore taxpayers money on recapitalizing the banks once again.<\/p>\n
\"We have information that some banks are suffering from
\nnegative spread problems which may erode their CAR,\" Benny told
\nreporters following an internal meeting.<\/p>\n
\"We'll summon the finance minister and IBRA on Thursday to
\ndiscuss strategies to resolve the problem ... We want to know the
\ndetails,\" he added.<\/p>\n
Several bankers had earlier expressed concerns that their
\nbanks would suffer negative spread problems due to continuing
\nincreases in Bank Indonesia's benchmark interest rate.<\/p>\n
Bankers said that the increasing benchmark rate was putting
\nupward pressure on the time deposit rate, but unfortunately the
\nbanks could not pass this on through new lending with higher
\ninterest rates due to the still high risk attached to the
\ncountry's real sector. These conditions were triggering the
\nnegative spread problem.<\/p>\n
The problem is much greater in banks which hold a larger
\nproportion of government bonds carrying a fixed interest rate of
\n12.5 percent as these banks' main source of revenue is still the
\ninterest on government bonds.<\/p>\n
The government has issued a massive Rp 430 trillion worth of
\nbonds to recapitalize around 27 banks. The bonds carry fixed and
\nvariable rates linked to the interest rate on Bank Indonesia SBI
\npromissory notes. But some of the recapitalized banks, including
\nthe huge Bank Mandiri, Bank Danamon, Bank Negara Indonesia and
\nBank Rakyat Indonesia, accepted a greater proportion of fixed
\nrate bonds.<\/p>\n
In a bid to avoid the negative spread problem, some banks had
\nreportedly made a deal to keep the interest rate on time deposits
\nunchanged, but it did not succeed.<\/p>\n
Bank Indonesia has continued to increase the interest rate on
\nits one-month SBI notes over the past couple of months in a bid
\nto help curb the inflationary threat and defend the ailing
\nrupiah.<\/p>\n
The one-month SBI rate is currently at 16.26 percent. Although
\ndeposit rates of some banks are still lower than the SBI rate,
\nthe banks cannot fully take advantage of this by investing all
\ntheir funds in the notes because the central bank only offers the
\nnotes in very limited amounts.<\/p>\n
The rupiah dropped to a 31-month low of more than Rp 12,000
\nper U.S. dollar last month due to a combination of domestic
\npolitical uncertainty and economic woes.<\/p>\n
But although the rupiah managed to strengthen to near the Rp
\n11,000 per dollar level last week, top Bank Indonesia officials
\nhave said that the central bank would maintain its tight monetary
\npolicy until expectations of high inflation had receded.<\/p>\n
Bank Indonesia deputy governor Miranda Goeltom recently said
\nthat inflationary pressure was high as reflected in the year-on-
\nyear inflation rate of around 10 percent over the past few
\nmonths.<\/p>\n
The government has called on the independent Bank Indonesia to
\nstop increasing the interest rate to avoid greater state budget
\nexpenses. The state budget covers the interest cost of the bank
\nrecapitalization bonds.<\/p>\n
Every one percent increase in the SBI rate causes additional
\nbudget expenses of around Rp 2.5 trillion, finance minister
\nPrijadi Praptosuhardjo has said.<\/p>\n
The rising SBI rate has become one of the factors forcing the
\ngovernment to revise the current 2001 state budget. (rei)<\/p>",
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