Banks 'continue to show positive results'

JAKARTA (JP): The country's 150 commercial banks continued to demonstrate a healthy performance in July with most of their interest margins showing positive growth, according to Bank Indonesia's report.

Bank Indonesia director for banking research and supervision Djoko Sarwono said that the net interest margin (NIM) in July increased to Rp 2.5 trillion (US$297.62 million) from Rp 2.3 trillion in June.

"The condition of our banks in general is okay," Djoko told a press weekly gathering.

NIM is the difference between the total interest revenue received by a bank and the total interest paid by the bank.

Djoko said that the NIM last year was negative and had only started to become positive since January.

He also said that interest spread, which is the difference between the interest paid by the bank to its depositors and the interest received by the bank from its lending activity, had been encouraging although it had declined from 12.3 percent in June to 9.7 percent in July.

"Despite the decline, the spread is still positive. There's no longer a 'negative' tag on our banks ... There should be no more flights to safety or to greater quality," he said.

Confidence in the country's banking sector plunged in 1998 and 1999 as the industry was badly hit by the financial crisis which started in the middle of 1997. As a result, many depositors turned to foreign banks to ensure the safety of their money.

Djoko said that operational profit in July jumped to Rp 4.9 trillion from Rp 1 trillion in June.

He admitted, however, that the jump was aided by the interest revenue enjoyed by banks which had been recapitalized by the government.

The government injected bonds to help finance the recapitalization of the country's banking sector.

Djoko also said that the capital condition of the banks had already turned positive starting in June at Rp 6 trillion, and soaring to Rp 30.4 trillion in July compared to minus Rp 37.9 trillion in May.

He said that once the bank recapitalization was fully completed next month, the capital condition would further improve.

"We have nearly settled the problem of capital in our banks. We only need to boost the banks' performance," he said.

Djoko explained that one crucial factor in boosting the banks performance was to immediately resolve the huge bank non- performing loans (NPLs).

He said that the level of NPLs in the banking sector declined to 29.3 percent in July from 30 percent in June.

"Several months ago, the NPLs were still at more than 32 percent. So we're doing okay especially when compared to Thailand whose level of NPLs is still at around 32 percent," he said.

"If the current positive macroeconomic environment is maintained, I believe that the target to have a level of NPLs below five percent by the end of next year could be achieved," he said, adding that the level was expected to drop to between 20-25 percent by the end of this year.

Djoko said that the resolution of the NPLs and the restructuring of the corporate sector was crucial to encourage banks to resume lending.

But he said that the banks had already started to provide new lending, albeit on a small scale.

He said that new bank lending in July was around Rp 10 trillion, compared to only at Rp 2 trillion in June.

"This figure is encouraging. Although Rp 10 trillion is small compared to a total lending portfolio of around Rp 283 trillion, it shows that the direction is positive," he said.

He said that most of the new lending was channeled as working capital particularly to the retail and export industries.

He added that the new lending included a Rp 2.5 trillion increase in rupiah loans and Rp 5.5 trillion jump in foreign exchange loans. (rei)