'Higher growth needs bank restructuring'<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
A speedier and healthier restructuring process in its banking
\nsector is an important prerequisite to expediting the recovery of
\nIndonesia's ailing economy, said a noted economist.<\/p>\n
Economist Faisal Basri said here on Monday that a higher
\neconomic growth was wishful thinking, if the banking sector
\nremained reluctant to provide lending to the real sector.<\/p>\n
\"It's hard to hope for a quick recovery in economic growth
\nwith such a low LDR as it is currently,\" Faisal said in his
\npaper, presented before a seminar on the country's strategy for
\neconomic development.<\/p>\n
Faisal was referring to the loan-to-deposit ratio, a ratio
\nthat measures a bank's loan exposure against third-party funds
\ncollected from the public. A high LDR ratio means that a bank has
\nchanneled a considerable volume of credit.<\/p>\n
He added that the LDR average in Indonesia is currently far
\nbelow that of other countries in the Southeast Asia region. As of
\nDecember last year, the country's banking sector posted an LDR
\naverage of 44 percent, as compared to around 80 percent recorded
\nby other Southeast Asian nations.<\/p>\n
The current average was even more discouraging in comparison
\nwith the LDR average before the financial crisis in 1997-1998,
\nwhen it measured 149 percent.<\/p>\n
Faisal said that this indicated that the banking sector, which
\nwas meant to be the backbone of the economy, is experiencing a
\nsluggish pace of recovery.<\/p>\n
Consequently, the slow pace impinges upon efforts to revive
\nthe real sector, which has been on the receiving end of the
\neconomic fallout during and after the financial crisis.<\/p>\n
Worse still, the current condition has come about at the
\nexpense of the public's collective pocket. In the aftermath of
\nthe financial crisis, in 1998, the government injected Rp 430
\ntrillion worth of capital in the form of bonds to domestic banks,
\nlater known as recapitalization bonds.<\/p>\n
These bonds were injected to replace loans that had gone bad
\n-- due to industries' failure to repay them as a result of the
\ncrisis -- and in order to strengthen the banks' capital.<\/p>\n
The injection of these bonds ensued in a severe consequence,
\nas not only had the government handed out the world's largest
\nbail-out package, but it had also committed itself to making
\ninterest payments for the bonds using taxpayers' money.<\/p>\n
Faisal pointed to the following reasons to explain the low
\nLDR.<\/p>\n
On the supply side, providing lending to the hugely indebted
\nreal sector still faces a high risk of defaulting, which means
\nthat banks have to provide a significant amount of provision
\nfunds to help keep their capital in check.<\/p>\n
The planned ruling to be issued by Bank Indonesia, that will
\nrequire market risks to be included in calculating a bank's
\ncapital adequacy ratio (CAR), is also expected to derail its
\ninterest to dole out credit.<\/p>\n
To make matters worse, Faisal went on, there was a trend for
\nbanks to issue a large amount of mutual funds using their
\nrecapitalization bonds as collateral, which made them even more
\nhesitant to provide loans.<\/p>\n
Another reason is the recent tendency for corporations to
\nissue bonds as capital-raising tools, because it is cheaper than
\nprocuring credit from banks.<\/p>\n
Meanwhile, demands from the private sector for new loans
\nremain low, amid a relatively modest economic growth.<\/p>\n
Despite the economic growth of between 3.8 percent to 4
\npercent in the past few years, the growth should be attributed to
\na robust domestic consumption, not to a massive expansion in
\nlocal industries amid mediocre exports and a fall in investment.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/higher-growth-needs-bank-restructuring-1447893297",
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"sponsor": "Okusi Associates",
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