BI asks bankers to tread carefully in debt market
BI asks bankers to tread carefully in debt market
JAKARTA (JP): Bank Indonesia Governor Soedradjad Djiwandono
told Indonesian bankers yesterday that their involvement in the
debt market should not endanger their banking activities.
"We've seen our debt market grow very rapidly in the last few
years. This resulted from globalization which we cannot avoid,"
he told a seminar on the development of the local debt market
yesterday.
He warned bankers that their excessive involvement in the debt
market could destabilize the financial system.
The one-day seminar, organized by WinPlus International, was
attended by about 300 people -- mostly bankers.
He admitted the private sector's increased participation in
national development had required more funding alternatives. And
securitization of commercial papers, medium term notes, bonds and
asset backed securities had become the main feature of the
banking industry.
"We cannot avoid such a trend. We, therefore, must cooperate
to develop new alternatives of funding with a view to improving
and not endangering our financial system," he said.
He said the banking sector could only fund the real sector
within a sound macro-economy, which is influenced by the
financial system.
Soedradjad said most Indonesian commercial papers were bought
by foreigners, and because most of the papers were denominated in
rupiah they tended to strengthen the currency.
"We've also seen that our currency has been increasingly
traded on domestic and foreign markets, particularly in London
and New York. This has resulted in an inflow of foreign funds to
our banking industry," he said.
He said such an inflow would not affect the rupiah's exchange
rate if the local market could fully absorb the foreign funds.
Farid Harianto, the president of Credit Rating Indonesia Ltd.,
called on the government yesterday to improve its legal framework
to accommodate the development of securitization.
"There has been a growing demand for securitization of
commercial papers here. Our companies consider it to be a better
funding alternative to expand business, and to improve their
assets and liquidity," he told The Jakarta Post yesterday.
Because of insufficient local regulations, seven companies --
including Citibank and Astra Sedaya Finance -- are selling their
commercial papers on foreign markets.
"Why don't we create a better legal framework to benefit from
such a trend," he said.
He said securitization should become bankruptcy remote,
whereby commercial papers were guaranteed against bankruptcy.
He said that tax neutrality and accounting standards were
other factors that should be regulated to encourage
securitization.
Edgar Ekaputra, the director of PT Danareksa, suggested
several measures to develop the local bond market, which still
lacks liquidity particularly in the secondary market.
Banks, he said, should become the market makers for bonds and
increase their credits to securities firms, which are bond
brokers.
The government should allow banks to buy mutual funds, allow
the issuance of bonds denominated in foreign currencies on the
domestic capital market. The government should issue bonds
denominated in rupiah on the domestic market to create a
benchmark.
He also called for the establishment of a bond dealers
association and a standard convention on trading mechanisms.
(bnt)