Banks urged to boost role in economy

Urip Hudiono, The Jakarta Post, Jakarta

The central bank is expecting the country's banking industry to maintain its solid performance for this year, with the growth in lending likely to outpace that of banks' third-party liabilities.

The solid lending growth, head of Bank Indonesia's directorate of banking credentials and information Siti Ch. Fadjrijah said, was expected to help raise the capital adequacy of the banks, while keeping their non-performing loans (NPLs) in check.

Speaking during a discussion on the country's economic prospects here on Wednesday, Siti said that bank lending in the country was estimated to grow between 20 to 25 percent this year, far outclassing the growth of their third-party liabilities -- of public savings and deposits -- estimated at some 6 percent.

"The lending includes some Rp 70 trillion (US$7.5 billion) that banks will disburse to small and medium-sized enterprises (SME) according to their business plans for this year," she said.

"The growth in credit will hopefully drive the nation's real sector further ahead amid stabilizing macroeconomic conditions, while giving handsome profits to the banks themselves."

The revelation should provide a respite for domestic banks, which have been criticized for failing to increase their investment in the slow growing economy.

The banking sector has been reproached, some say unfairly, for its reluctance to expand credits to the trade and manufacturing sectors, preferring instead to invest its money in government bonds, or Bank Indonesia's one-month promissory notes (SBI).

Data from BI shows that bank lending in the country reached Rp 595.1 trillion in 2004, up 24.7 percent from Rp 477.2 trillion the year before.

Third-party liabilities of the banks, meanwhile, rose 8.4 percent to Rp 963.1 trillion last year, from Rp 888.6 trillion in 2003.

That means, on a yearly basis, the banking sector has extended loans of a much higher value than that the money it has obtained from deposits and public savings.

The average loan-to-deposit ratio (LDR) of banks still stands at 50 percent, while non-performing loans stand at 1.7 percent. Their capital adequacy ratios (CAR), meanwhile, are at an average of 19.4 percent. BI requires all banks to maintain a CAR of above 18 percent and NPLs of below 5 percent.

Siti said the banking industry was still facing many challenges to achieving growth this year, mainly in conducting good governance principles in their businesses.

For its part, Siti said BI would continue to improve the country's banking industry structure according to its Indonesian Banking Architecture (API) and international Basel principles of banking.

Concerning the implementation, Siti said that a majority of banks in the country are aiming to become limited banks with a minimum capital of Rp 100 billion.

Under the API restructuring plan by 2010 the country will have only three international banks with capital of more than Rp 50 trillion each, five national banks with capital of between Rp 10 trillion and Rp 50 trillion, 30 to 50 specialized banks with capital of between Rp 100 billion and Rp 10 trillion, and limited banks with capital of up to Rp 100 billion.