Banks told to stimulate local capital market

Banks told to stimulate local capital market

JAKARTA (JP): The Capital Markets Supervisory Agency (Bapepam)
has called on custodian banks and fund managers to establish
mutual funds to help inject badly needed "blood" into local
capital markets.

The agency's chairman, I Putu Gede Ary Suta, said at a seminar
here yesterday that large local custodian banks with their
extensive networks across the country can initiate the
establishment of mutual funds.

"Large banks like state-owned Bank Negara Indonesia 1946
should initiate the establishment of a mutual fund to promote
stock market products to their customers," Putu told the seminar,
hosted by Citibank Global Asset Management.

Colin Woolcock, general manager of Citibank, N.A. for
Indonesia, told the seminar that his bank plans to establish a
mutual fund next year.

"The sooner the better," Putu said, responding to Woolcock's
announcement.

Putu explained that the proposed funds should be designed to
meet the needs of a wide range of investors. They would be
particularly suitable for investors wishing to participate in
stock markets who lack the time or resources to handle the
paperwork, analyze opportunities, monitor exposures or manage
trading.

By establishing such mutual funds, Putu added, banks can
diversify their fee-based incomes and also help activate local
stock markets and improve their domestic investor base.

A similar proposal has been put forward by the Local Private
Banks Association's supervisory board chairman, I Nyoman Moena,
who suggested that banks offer their customers stock investment
as a new product, in addition to their traditional products, such
as time deposits.

Moena's proposal is expected to circumvent the 1982 Banking
Law, which bars banks from putting their own money into stocks.

Putu noted that such mutual funds must be operated by
qualified fund managers who conduct profitable stock investment
for their customers in good faith.

Currently there is only one mutual fund which is managed by a
professional fund manager, PT BDNI Reksadana. As of last March,
the fund, which was initiated by the publicly-listed Bank Dagang
Nasional Indonesia (BDNI), managed total assets of Rp 324 billion
(US$138.2 million).

"Compared to Malaysia, we are far behind in the mutual fund
industry," Putu said, adding that Malaysia, with 27 fund
managers, has 67 mutual funds which, as of last December, managed
a total net asset value of US$17.6 billion.

As comparison, mutual funds in Germany manage total assets of
$82.8 billion, those in France $383.2 billion, those in England
$91.5 billion, those in Japan $353.5 billion, those in South
Korea $32.8 billion, those in Australia $29.1 billion and those
in the United States $1.07 trillion.

Currently Indonesia has 24 licensed custodian banks and 55
licensed fund managers.

Of the 55 fund managers, 22 are joint ventures and the
remaining 33 local entities. As of last March, the 28 largest
fund managers managed combined assets of Rp 3.1 trillion with 216
customers.

To attract new customers, Putu suggested that fund managers
offer a variety of products, such as money market products which
could focus on debt instruments.

"Such a money market fund product should be an instrument to
attract local investors, who are mostly conservative in their
investments, and persuade them to start investing their money on
capital market products," Putu said.

From investment processes in mutual funds' money market funds,
investors are expected to be acquainted with stock market
products and will continue to invest in equity products through
mutual funds, Putu added.

Indonesia now has two capital markets, in Jakarta and
Surabaya. In terms of local investor participation, both of them
are stagnant.

With only some 600,000 domestic investors in the two stock
exchanges, Indonesia is the ugly duckling of the region's
emerging markets in this sense.

Pension funds

Putu yesterday also called on local pension funds to actively
help develop domestic investor-based local stock exchanges by
making more investment in the markets.

"There are more and more foreign pension funds investing their
money on local stock markets. I don't know why local pension
funds are still reluctant to invest more in equities," Putu
remarked.

Meanwhile, Director General of State-owned Enterprises
Bacelius Ruru noted that most of the pension funds affiliated to
state firms invest 70 percent of their money in short-term fixed-
income instruments, especially time deposits.

Ruru argued that such "safe" pension fund investment
management was not healthy for the country's macroeconomy.

"The excessive accumulation of funds in a certain sector (the
banking sector) is an unhealthy indicator for our macroeconomic
situation," Ruru said, adding that some of the funds need to be
channeled to other sectors, especially to long-term investments.

"If we can transfer some of those funds to the long-term
investment sectors, the cost of doing business will go down,"
Ruru noted. (rid)