95 banks book windfall profit from forex trade
JAKARTA (JP): The drastic fall of the rupiah against the U.S. dollar has brought a windfall profit to 95 foreign exchange banks, the Indonesian Business Data Center (PDBI) said yesterday.
They recorded a combined foreign exchange income of Rp 25.7 trillion (US$1.8 billion at the current rate) last year, which accounted for 32.5 percent of their total income in 1997.
The center said 58 percent of the forex income was accrued from forex trading and the rest was from interest earnings on forex loans.
The seven state banks gained Rp 13.8 trillion of the total forex earnings and the rest went to local private banks, joint- venture banks and foreign banks with branches here.
However, PDBI warned that the analyses was based on 1997 financial reports and did not include forex losses reported in the first half of this year.
The banking community was shocked by an acknowledgement from state Bank Ekspor Impor Indonesia (Bank Exim) in March that it was facing large losses from forward foreign exchange deals, in which the bank had contracted to sell a total of $2.2 billion at an exchange rate of Rp 2,725 to the U.S. dollar.
PDBI added that its analysis of the 95 banks excluded data not included on their balance sheets.
The center also reported that the 95 banks extended a total of Rp 133.4 trillion in forex loans, or 38.6 percent of their total credits at the end of 1997.
Domestic private banks issued Rp 61.5 trillion in forex loans which produced Rp 5.7 trillion in interest earnings.
However, the huge forex credits were not matched by reserves denominated in foreign currencies held by the 95 banks. Foreign currency holdings stood at Rp 95.4 trillion at the end of last year resulting in a deficit of Rp 37.9 trillion.
"This will hinder their future performance. Moreover, in the rupiah sector they have already suffered a large negative spread. This is dangerous and has the potential to become a time bomb in 1998," Beni Sindhunata warned.
The continuing depreciation of the rupiah against the U.S. dollar has caused forex loans made by Indonesian commercial banks to swell from Rp 86 trillion in August 1997 to Rp 180 trillion in April 1998.
In dollar terms, forex loans expanded by only 10.5 percent over that period.
Forex loans
Forex loans to local corporations have the potential to turn bad because most indebted local firms hold unhedged debts.
PDBI reported the previous day that 215 of the country's 289 publicly listed companies recorded a combined loss of Rp 19.1 trillion.
"Forex income in the banking sector was bigger than the losses booked by 215 corporations," PDBI chief research officer Beni Sindhunata said in the statement.
"At a time when the industrial sector is bearing an extraordinary burden because of unhedged debts, the banking industry has made large profits from forex trading and exchange rate differentials."
PDBI suggested that the banks should help the indebted corporations by restructuring their forex debts through an agency similar to the Indonesian Debt Restructuring Agency (INDRA).
INDRA, which emerged out of the Frankfurt corporate debt agreement, provides exchange rate risk protection and guarantees the availability of foreign exchange to private debtors that agree with creditors to restructure external debts over a period of eight years, including a three year period of grace during which no principle needs to be repaid.
"To salvage the loans and help local businesses, especially forex debtors, it is necessary to consider the establishment of an agency similar to INDRA which is specifically designed to tackle domestic forex loans," Sindhunata said.
He suggested that the 13 local banks which had issued 81 percent of the total domestic forex loans at the end of 1997 form a consortium to represent lending banks in restructuring domestic forex loans. (rid)