JP\/ \/Bank<\/p>\n
Banks enjoy strong profit, but intermediary role still weak<\/p>\n
Dadan Wijaksana
\nThe Jakarta Post\/Jakarta<\/p>\n
Business-wise, the banking industry is in for probably the best
\nyear of showing since the crisis.<\/p>\n
With most large banks posting a sharp increase in profits this
\nyear (as the table shows), one would be tempted to think that the
\nbanking sector has finally recovered from the crushing 1997-1998
\ncrisis, and started cashing in on rewards from a painful and
\ncostly rebuilding process.<\/p>\n
The steady improvement in other banking indicators such as
\nnon-performing loans (NPLs), capital adequacy ratio (CAR), and
\nloans exposure should also help support that argument.<\/p>\n
Looking closer, however, such an assessment would prove to be
\neither too optimistic, or premature.<\/p>\n
Try this argument.<\/p>\n
The NPL ratio measures a bank's non-performing loans --
\ncategorized as loans on which interest payments are 90 days
\noverdue -- against its total loans. CAR measures a bank's health
\nby comparing its capital against risk-weighted assets such as
\nloans.<\/p>\n
The higher the CAR, the healthier the financial condition of
\nthe bank.<\/p>\n
NPLs are currently averaging some 10 percent, as against more
\nthan 12 percent last year, while CAR is averaging 20 percent as
\ncompared to 16 percent the year before.<\/p>\n
As for lending, in the first nine months alone, credits have
\ngrown by 22 percent, more than last year's growth of close to 20
\npercent.<\/p>\n
In fact, it is lending (particularly in the form of consumer
\nloans) that is the major factor behind the banking sector's rapid
\nprofit growth this year, as the banks' third party liabilities
\ngrew slower at between 6 percent to 7 percent during that period.<\/p>\n
Consequently, banks enjoyed a hefty net interest margin (NIM),
\nas they get more interest payment from debtors than the payment
\nthey have to pay to their depositors.<\/p>\n
By comparison, while credits carry a double-digit interest
\nrate, the rate for time deposits and savings is still averaging 5
\npercent.<\/p>\n
There are even banks here that gain an interest rate margin as
\nhigh as 8 percent, higher than the average 5 percent NIM enjoyed
\nby banks in neighboring countries.<\/p>\n
All seems to have justified claims that the banking sector has
\nreached the light at the end of the tunnel.<\/p>\n
Sadly, in most cases, the strong financial showing -- notably
\nthe huge profits -- was not purely due to the hard work of the
\nbankers, but more by the impact of the central bank's aggressive
\nmove to cut its benchmark (SBI) interest rate, which hovers at a
\nrecord low of slightly above 7 percent these days.<\/p>\n
"Such a spread is way too wide. I think the normal margin
\nshould be around 4 percent," banking analyst M. Fendi Susiyanto
\nacknowledged.<\/p>\n
The lower benchmark rates forced interest rates on bank time
\ndeposits and savings to fall.<\/p>\n
But in contrast, the rates on loans remain high as the banks
\nare cautious about channeling their funds to the corporate
\nsector, partly because of the high risk they claim the business
\nsector possesses -- which eventually further discourages
\nbusinessmen from seeking loans.<\/p>\n
This is reflected in the relatively low loan-to-deposit ratio
\n(LDR) of some 50 percent, compared to more than 80 percent in the
\npre-crisis period.<\/p>\n
So, in another words, while progress is indeed being made and
\nshould be appreciated, the conclusion that the sector has fully
\nrenewed its image and become the locomotive of the economy is
\nsomewhat unfounded.<\/p>\n
They appear to be more interested in keeping the rates high in
\nreturn for a fat interest rate spread, rather than making all-out
\nefforts to lower them so as to help ignite the real sector, which
\nwould otherwise have a much bigger impact on the overall economy.<\/p>\n
The economy is set to grow by 4.8 percent this year, but many
\nanalysts share the opinion it could have grown faster had the
\ncorporate sector been supported by abundant bank lending.<\/p>\n
The banks are indeed entitled to reap as much earning as
\npossible as they are after all a profit-oriented entity.<\/p>\n
But, taking into account the huge cost the country -- c.q.
\ntaxpayers -- had been forced to make in bailing out banks during
\nand after the crisis, greater sacrifice from them would still be
\njustified.<\/p>\n
During the aftermath of the financial crisis, the government
\ninjected some Rp 430 trillion in the form of bonds to domestic
\nbanks, under the recapitalization program.<\/p>\n
These bonds were injected to replace the bank loans that had
\nturned sour due to the crisis, thus strengthening their capital.<\/p>\n
The government had said the costly program was needed to avoid
\na systemic collapse in the banking sector, which would have then
\ndragged the economy into deeper problems.<\/p>\n
The consequence however, has been severe. From then on, the
\nstate, at taxpayers' expense, has to spend tens of trillions of
\nrupiah every year for the interest payments of those
\nrecapitalized banks.<\/p>\n
True, many of those banks have gradually unloaded some of the
\nbonds, but to date, they still constitute a large share of their
\ninterest-based revenue.<\/p>\n
As of September, recap bond interest payments made up around
\n25 percent on average of the banks' total interest-based income.<\/p>\n
Take for instance Bank Negara Indonesia (BNI), the country's
\nsecond largest lender. From its third-quarter Rp 8.6 trillion
\ninterest-based income, some Rp 2.7 trillion (30 percent) came
\nfrom interest revenue obtained from the recap bonds.<\/p>\n
Another example is Bank Internasional Indonesia (BII), which
\nenjoyed up to 42 percent of its interest revenue from recap
\nbonds.<\/p>\n
Against this backdrop, the banks' accomplishment in reaping
\nhuge profits pales by comparison.<\/p>\n
Still, one can well argue that signs of progress are there,
\nand that the banking industry is on the right track toward
\nachieving its ultimate goal of playing a significant -- if not
\nleading -- role in the economy.<\/p>\n
It is now the task of Bank Indonesia, at least in terms of
\nregulations, to make sure the momentum of reform is maintained.<\/p>\n
Aside from pushing more loans to the corporate sector, and
\nimproving its financial condition, efforts to improve corporate
\ngovernance should also form part of an action plan Bank Indonesia
\nneeds to undertake to speed up efforts to create a sound and
\nreliable banking system.<\/p>\n
Boosting corporate governance -- intensifying the surveillance
\nsystem and implementing a tougher screening process for bankers
\n-- is crucial to help avoid banking fraud which still takes place
\ndespite years of restructuring.<\/p>\n
The success of those efforts will play a major role in
\nretaining and even accelerating the pace of reform, and thus most
\nimportantly, restoring public confidence in the banking sector.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/jp-bank-1447899208",
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