Banking condition improving: Survey

M. Taufiqurrahman, The Jakarta Post, Jakarta

After grappling to survive the financial crisis, the banking industry in Indonesia is well on its way to recovery and playing an improved intermediary role, a survey says.

A survey made public by banking and financial magazine InfoBank on Tuesday revealed that in 2002, lendings made up 40.1 percent of the productive assets of the country's banking industry, a slight increase from 34.8 percent the year before.

"On the other hand, government bonds accounted for 35.2 percent of the total assets, declining from 38 percent in 2001," said Eko Supriyanto, research director at InfoBank.

He said that in 2002 the banking industry managed to post a profit of Rp 17.75 trillion (US$2 billion) -- the highest in the last five years -- of which a substantial amount was accrued from increased loans.

In 2001, the banking industry gained a combined profit of Rp 9.26 trillion.

The survey also revealed that of 138 banks in the country, 30 were considered as having a good performance in terms of their capital adequacy ratios (CAR) and nonperforming loans (NPL). On the list of the well-performing banks were, among others, Bank Central Asia (BCA), Bank Mandiri, Bank Internasional Indonesia (BII) and Permata Bank.

With a CAR reaching a healthy level of 25 percent and NPL of 4.4 percent, Bank Danamon was named by InfoBank as the country's best bank for 2002.

NPL measures a bank's nonperforming loans against its total loans. Loans on which interest payments are 90 days overdue are categorized as nonperforming.

CAR measures a bank's health by comparing its capital against risk-weighted assets such as loans. The higher the CAR, the better a bank's capacity to cover the risks of its assets with its capital.

While most of the surveyed banks already had CARs above the healthy level of 12 percent, the survey discovered that there were 23 banks whose CARs were just above that level.

Banking analyst Dradjat Wibowo said the sound performance of the banking industry should in large part be attributed to government recapitalization bonds.

Drajat said that of the total Rp 17.75 trillion profit booked by the industry in 2002, about Rp 6.3 trillion was gained from fabricated transactions wherein interest for deposits was paid with income gained from government bonds. This practice is possible because of the disparity between the interests on government bonds and those on deposits, he said.