Banks 'should turn to loans' as SBI rates fall
Banks 'should turn to loans' as SBI rates fall
Dadan Wijaksana, The Jakarta Post, Jakarta
As Bank Indonesia benchmark rates continue to fall, banks
should shift away from government bonds to new lending, or risk
their interest revenue declining, analysts said over the weekend.
"Banks should focus on generating income from loans," said Edy
S. Widjojo, an analyst at Ciptadana Securities.
According to Bank Indonesia data, last year loans made up only
34.7 percent of the banking industry's productive assets. Forty-
four percent consisted of recapitalization bonds.
The bonds are worth some Rp 434 trillion (about US$46
billion), of which about half is tied to the benchmark rates of
Bank Indonesia promissory notes (SBIs).
Banks prefer holding recapitalization bonds even though they
yield lower interest rates compared to loans. They are deemed
securer given the still sluggish economy that made news loans
risky.
Variable ones also earn a hefty sum on the back of high
interest rates on Bank Indonesia promissory notes (SBIs).
But with the rupiah's steady rise since early this year, Bank
Indonesia rates have fallen. Rates are down some 2 percentage
points compared to the end of last year.
Analysts said the lower rates now threatened the income of
banks holding recapitalization bonds with variable rates.
"There is no other way for banks but to turn to new loans,"
said Edy.
According to him, improvements in the country's business
climate could entice new loans.
In terms of loan-to-deposit ratio (LDR), which measures a
bank's loans compared to its third party liabilities or public
funds deposited, banks' lending did increase last year. LDR rose
to 45 percent from 20 percent in 2000.
Publicly listed Bank NISP recorded the highest LDR at 77
percent in 2001. Its loans amounted to Rp 4.33 trillion.
However, NISP's high LDR is more the exemption than the rule.
State Bank Mandiri, the country's largest in terms of assets,
booked an LDR of 25.3 percent in 2001.
Publicly listed state Bank Negara Indonesia's (BNI) 2001 LDR
was 35 percent. Loans amounted to Rp 36 trillion as against third
party liabilities of Rp 102 trillion.
Worse yet is Bank Central Asia (BCA) at 16 percent LDR last
year. Its loans totaled Rp 14.63 trillion compared to third party
liabilities of Rp 90.357 trillion.
Nationalized Bank Niaga, which is for sale this year, recorded
an LDR of 45 percent last year. Bank Danamon recorded 26 percent,
and Bank Bali 20 percent. The latter is slated for merger with
four other banks in an effort to boost capital.
For this year, analysts expect banks to further push their
LDR, providing that domestic investment spending picks up.
"The banking sector faces a better future because of an
overall better condition in the country," said Ryan Kiryanto, an
banking analyst with BNI.
According to him, banks should lend to the retail sector,
which offers fewer risks than the corporate sector.
Banks' retail sector has been booming in line with an increase
in consumer spending over the last two years.
Economists expect consumer spending to drop off this year, but
remain the key driver of the economy.
The retail sector has also channeled loans into small and
medium-sized enterprises. Bank Indonesia expects lending to the
retail sector to help push loan growth by Rp 62.12 trillion
compared to Rp 47.7 trillion last year.
The corporate sector has been less alluring because of a
prolonged adverse business climate and dragging debt talks. Risks
of loans turning bad under this condition remain high.
Banks like BCA, Bank Bali and Bank Panin posted hefty profits
in 2001, some benefiting from Bank Indonesia's high benchmark
rates that year.
Last year, the rates climbed from 14 percent in January to
nearly 18 percent in December. They have since decreased to 16.2
percent.
Lending to the retail sector would enable banks to partially
offset falling Bank Indonesia benchmark rates, according to Ryan.
"Domestic banks did well last year, they have a chance (of
doing it again) this year," he said.