Banks urged to restructure, strengthen capital base

JAKARTA (JP): Bank Indonesia director Hendrobudiyanto yesterday called on local banks to restructure, improve human resources and strengthen their capital base to face free trade in financial services.

Speaking at the close of an Indonesian National Private Banks Association meeting last night, Hendro said it was time to take such measures, considering that free trade in services would start soon in the region and the world.

"In the free market era, only healthy and disciplined banks will survive competition," Hendro said after inducting A.S. Subowo from Bank Central Asia as new chairman of the banks association, replacing Trenggono Purwosuprojo.

Free trade in services is expected to sweep the Southeast Asian region by 2003 under the ASEAN Framework Agreement on Services.

It will eventually cover the Asia-Pacific region through the Asia-Pacific Economic Cooperation forum and then the world through the General Agreement on Trade in Services.

Even now, Hendro said, financial services were already globalized, with huge cross-border funds movement.

Hendro said the country's banking industry should therefore prepare themselves for free trade by strengthening their competitiveness.

Hendro said the country's banking industry was still infected by several weaknesses, including a weak capital base, incompetent human resources, bad loans and problem banks.

Speaking at the opening of the meeting Thursday, President Soeharto also called on local banks to cut down problem loans, strengthen capital and minimize banking crimes.

Hendro reiterated that local banks should uphold effective and objective evaluation, procedures and administration in their business to create sound, self-regulatory banking in the country.

Yesterday's meeting endorsed a banking code of ethics to ensure fair banking competition in the country.

The meeting's chair Mochtar Mandala said the banking code of ethics provided local banks with boundaries on acceptable banking practices.

"With this code of ethics, banks are expected to compete healthily," Mochtar said.

Meanwhile, Mark E. Hansen from PT Booz. Allen & Hamilton Indonesia said at yesterday's session that Indonesian banks should be bold enough to abandon their current banking practices to find a new strategic focus.

"Most Indonesian banks do not want to be more focused but want to be universal banks," Hansen said.

"Without focused strategic changes, many banks would fail in their needed transformation," he added.

He said that Indonesian banks should commit to changes, redefine their proposition value, and -- the most possible one -- form an alliance with global players to open access to world- class capabilities. (rid)