Monetary policy may affect banks' earnings: Soedradjad<\/p>\n
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
\nacknowledged here yesterday that the government's prudent
\nmonetary policy could result in declines of commercial banks'
\nearning growths.<\/p>\n
\"That is probably correct. In the banking industry, there are
\nalso ups and downs,\" he said in response to analysts' estimates
\non possible drops in the growth of banks' profits this year.<\/p>\n
Soedradjad said that the consolidation taken by the banks to
\nmeet the central bank's prudential monetary policy -- such as the
\nrecent increase in the reserves requirement -- would effect their
\nprofitability.<\/p>\n
\"The consolidation, however, creates a good atmosphere, making
\nbanks' operations more solid,\" he told journalists after
\naccompanying the visiting deputy managing director of the
\nInternational Monetary Fund, Stanley Fischer, to a meeting with
\nPresident Soeharto.<\/p>\n
Bank Indonesia raised the minimum requirement of bank reserves
\nfrom 2 percent to 3 percent of their deposits beginning in
\nFebruary as part of its efforts to cool down economic
\noverheating.<\/p>\n
The rise in the reserves requirement, designed to limit credit
\nexpansion, would certainly slow down earning growths in the
\nbanking industry, analysts said.<\/p>\n
For example, the average rate of earning growth of the 22
\nlisted banks, which rose to 30 percent last year from 20 percent
\nin 1994, is projected to drop back to a range between 20 percent
\nand 25 percent, they estimated.<\/p>\n
Jasso Winarto, a director of a research company, said that
\ncommercial banks should be able to improve their efficiency and
\nincrease their fee-based incomes to offset a decline in their
\ncredits.<\/p>\n
\"Lowering operational costs and making more money from non-
\nlending services are, therefore, essential,\" he said.<\/p>\n
Morgan Guaranty, the commercial bank affiliated with the U.S.-
\nbased JP Morgan, noted that the rise in the bank reserves should
\ncurtail banks' ability to create new loans.<\/p>\n
Morgan Guaranty, however, warned that Bank Indonesia could
\nfurther raise the reserve requirement if its existing monetary
\ninstruments failed to curb the growth of credits.<\/p>\n
A managed exchange rate regime and the absence of barriers to
\ncapital inflows limit Indonesia's alternatives of monetary policy
\ninstruments.<\/p>\n
\"If capital inflows pick up in the next few months, Bank
\nIndonesia will likely attempt to hold down credits by relying on
\nregulatory measures, such as moral persuasion and further reserve
\nrequirement hikes,\" Morgan said.<\/p>\n
Soedradjad said recently that since the third quarter of 1995,
\nthe narrowly defined money supply (M1), comprised of cash and
\ndemand deposit, showed slowing down.<\/p>\n
The narrowly defined money supply, which grew by 16.1 percent
\nin December last year, declined to 14 percent in February. The
\nbroad money supply, comprised of M1 and quasi money, also
\ndeclined to 26.79 percent in February after reaching its peak
\nlevel of 28.04 percent in November. It is, however, still far
\nhigher than the 17 percent indicative target stipulated in the
\nbudget plan.<\/p>\n
Soedradjad acknowledged that a continued increase in the broad
\nmoney supply partly resulted from the rise in the inflows of
\nshort-term foreign funds.<\/p>\n
Bank credits, reaching their highest annual growth rate of 27
\npercent in August, 1995, dropped to 23.6 percent in February this
\nyear, still far higher than the indicative target of 16 percent.
\n(hen)<\/p>",
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