Banks sustain operating loss of Rp 52.09t

JAKARTA (JP): Indonesia's banks suffered a combined operating loss of 52.09 trillion (US$7.2 billion) in the year to October, compared to a total loss of Rp 177.50 trillion last year, Finance Minister Bambang Sudibyo said on Monday.

Speaking at a hearing with House's special committee on state budget, Bambang said operational income during the first 10 months totaled Rp 129.72 trillion, while operational expenses reached Rp 181.81 trillion.

He said the prevailing negative interest rate spread problem during the period had cost the industry some Rp 21.20 trillion, compared to a loss of Rp 63.20 trillion in 1998.

Interest on income was Rp 74.82 trillion during the 10 months, while interest costs totaled Rp 96.01 trillion, he said.

The negative spread problem theoretically occurs when a bank has to pay a higher cost for the savings and time deposits compared to the interest rate it charges for its lending.

But here, most local banks are suffering a negative interest rate spread because most of their funds are invested in Bank Indonesia's low-interest promissory notes. They are forced to pursue this action due to their negative equity problems.

"The recovery of the loss due to the negative spread problem will be very much dependent on the performance of the banking sector in channeling its credit and the recovery of the real sector," Bambang said.

"It will also depend on the recovery of the overall national economy. So it is difficult to estimate exactly the time needed (for the recovery).

"But assuming that the bank restructuring program goes smoothly and the economy has started to recover, it is predicted that the national banks can recover in four to five years time."

Indonesia's banking sector suffered its most difficult year in 1998 as the economic crisis that started in the middle of 1997 deepened.

Interest rates surged to more than 70 percent at the peak of the crisis early last year, resulting in the sharp increase in non-performing loans (NPLs).

Bambang said the ratio of NPLs to total bank lending in 1998 was 48.5 percent, compared to only 7.2 percent in 1997.

The negative spread problem and the huge NPLs eroded the banks' capital to minus Rp 129.7 trillion in 1998, from positive Rp 46.12 trillion in 1997, he said.

He added that the banks' capital was still minus Rp 101.1 trillion.

Bank closure

The government has closed down 66 banks since late 1997, nationalized 11 banks and recapitalized eight banks.

An improvement in the country's macroeconomic picture, particularly with inflation dropping to less than 2 percent and the Bank Indonesia benchmark interest rate falling to less than 13 percent has helped to reduce the negative spread problem.

"With inflation under control and the Bank Indonesia benchmark interest rate dropping, it's expected that the national banks can resume lending to the business sector so that the intermediary role of the banks can function again."

Bambang said the government was pressing ahead to recapitalize the banking sector to boost the banks' capital to allow them to start lending.

Bambang said that as of Oct. 13, 1999, the government had issued Rp 206.8 trillion worth of bonds to recapitalize several banks.

He also said the government had issued another Rp 218.3 trillion worth of bonds (as of Oct. 13) to repay obligations to Bank Indonesia, which provided liquidity support to the banking sector last year amid massive bank runs. (rei)