Analysts cheerless over banks' outlook
Analysts cheerless over banks' outlook
Berni K. Moestafa, The Jakarta Post, Jakarta
High Bank Indonesia interest rates, slow progress in debt
restructuring and slackening economic growth created bleak
prospects for the country's banking sector over the remaining two
months of the year, analysts said on Wednesday.
Hans Anggito, senior analyst at Kim Eng Securities, said
economic conditions had remained unfavorable for banks seeking an
upturn in the fourth quarter of this year.
"Banks' third quarter reports haven't come out yet, but
judging from our economic conditions I would say they aren't
good, nor is the outlook for the last quarter (of this year)," he
said.
High interest rates, and slowing gross domestic product (GDP)
growth put a lid on banks' lending capabilities, he explained.
Hans said Bank Indonesia's interest rates were on average
higher than rates last quarter.
This situation made lending for investments more expensive,
making it difficult for banks to expand their loan base.
"I think at the moment the average bank's LDR (loan to deposit
ratio) stands at 20 percent. At 1997 pre-crisis levels, they
could reach as high as 80 percent," he explained.
Falling short in loan expansions, many banks turned to
investing in the much safer promissory notes issued by Bank
Indonesia known as SBIs.
SBI rates have been rising since early this year, hovering at
above 17 percent over the past few weeks, compared to around 12
percent at the beginning of the year.
Other than SBIs, most of the heavily recapitalized banks also
rely on interest payments from government bonds.
Bank Indonesia keeps its SBI rates high to absorb liquidity
from the money market that could otherwise be used to speculate
against the rupiah.
But this measure results in higher lending costs, as banks
adjust their credit rates in line with the SBI rates.
Consequently, borrowing has become too expensive for many
firms.
Given the slow debt restructuring process under the Indonesian
Bank Restructuring Agency (IBRA), banks also lacked good assets
to invest in, he added.
Among other things, IBRA was set up to restructure non-
performing loans that it took over from struggling banks hit by
the 1997 financial crisis.
Once restructured, the loans are supposed to be rechanneled
into the banking sector. However, progress has been slow.
To have banks again take up their restructured loans, Hans
said, was vital to revive the banking sector's intermediary role
in the economy.
Senior economist Hendri Saparin of the Advisory Group on
Economics, Industry and Trade (Econit), said she saw no signs of
significant recovery in the banking sector.
She said as long as the industry remained fragile, the
performance of the banking sector would be unlikely to improve
significantly in the near future.
The government's decision to shut down unfit banks was
necessary, but could have been avoided if it had taken a more
comprehensive approach.
"Instead of coping with the issue on a case by case basis, we
should seek and implement a comprehensive solution,"
The government does aim to consolidate more banks and make
them stronger, but the plan is progressing slowly.
Hendri suggested that aside from mergers, the government must
also categorize banks according to the scope of their operations.