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)