Business remains promising despite some difficulties

Business remains promising despite some difficulties

Rikza Abdullah, Contributor, Jakarta

The high growth of domestic consumption has helped Indonesia's
multifinance companies accelerate the pace toward recovery after
the recent economic crisis devastated it, forcing a large number
of financial service companies to halt operations or even
collapse.

Data at the Ministry of Finance show that as of the end of
June, out of the 245 companies licensed to operate in
multifinance services -- including leasing, factoring, consumer
financing and credit card financing -- three had gone bankrupt,
two had been liquidated, 10 merged into five and two others no
longer operated. In addition, the ministry had also revoked the
operational licenses of 14 others.

Susilo Sudjono, chairman of the Indonesian Financial Services
Association (IFSA), said here on Thursday that out of the
financial service companies that still held licenses from the
ministry, only about 30 percent to 40 percent were still active,
while the remainder did not show any business activities.

According to ministry data, the country's financial service
companies enjoyed a combined net profit of Rp 923 billion in
1996, with total operational investments of Rp 26.58 trillion.

In 1997, they managed to sharply increase operational
investments to Rp 38.03 trillion, but, instead of enjoying a
profit, they suffered a combined loss of Rp 187.98 billion
because of the steep depreciation of the rupiah against the U.S.
dollar. The sharp rise of domestic interest rates after the start
of the economic crisis in July raised their debt servicing to Rp
39.18 trillion from Rp 24.01 trillion in the previous year.

Their combined loss surged to Rp 4.66 trillion in 1998, as
their business activities declined drastically, with total
investments reaching only Rp 29.27 trillion. The business in the
following year showed an improvement, enabling them to book a
combined profit of Rp 539.62 trillion, even though their total
investments fell further to Rp 21.99 trillion.

But they again suffered losses of Rp 2.39 trillion in 2000,
even though there was a 36 percent increase in their operational
investments to Rp 28.72 trillion.

In 2001, they could again increase operational investments by
nearly 7 percent to Rp 30.04 trillion and at once reduce their
total losses to Rp 118.96 trillion. But could they improve their
performance and start making profit from this year on?

"We are sure our operational investments will grow by a
minimum of 20 percent this year," Susilo told The Jakarta Post.

According to him, for healthy companies, financial services
remain promising amid signs of the country's economy.

He explained that the demand for financial services was now
very high and the companies had been equipped with adequate
infrastructure and networking.

"The most important thing is that they should concentrate more
on the business segment where they have advantages," he added.

Dennin Firmansjah, president of PT Saseka Gelora Finance, a
finance company focusing its business on leasing, told the Post
that the demand for leasing for heavy equipment, for example, was
very high because construction of coal mines and roads had
resumed, while contractors had not replaced their equipment since
the start of the economic crisis.

"The demand for barges, each worth Rp 5 billion and over, is
also very high now," he said.

Susilo, who is also president of PT Stacomitra Sedaya Finance,
a company focusing on consumer financing, said consumer financing
was now the most promising sector in the financial service
industry.

"Some 60 percent of about 300,000 automotive vehicles are sold
in the country every year with credits provided by financial
service companies and commercial banks," he said. "And about 70
percent of approximately 2.5 million motorcycles are also sold on
credit."

According to ministry data, financial service companies'
credits for leasing increased from Rp 12.12 trillion in 1996 to
Rp 16.9 trillion in 1997 but fell to Rp 15.64 trillion in 1998
and to Rp 10.92 trillion in 1999 before rising back to Rp 13.39
trillion in 2000 and to Rp 13.73 trillion in 2001. Out of the
credits for 2001, 15.6 percent went sour.

Meanwhile, their financing for consumer goods purchases rose
from Rp 6.36 trillion in 1996 to Rp 10.6 trillion in 1997 but
fell to Rp 5.24 trillion in 1998 and to Rp 4.32 trillion in 1999
before rising back to Rp 8.39 trillion in 2000 and to Rp 12.26
trillion in 2001. Out of the credits for 2001, 2.1 percent went
sour.

Dennis, who is also IFSA's vice chairman for industrial and
business affairs, said the factoring sector had become less and
less attractive over the past years due to the decline in
industrial activities in the country. Credit card financing by
financial service companies was also small because it required
heavy investment.

Factoring by financial service companies steadily decreased
from Rp 10.09 trillion in 1997 to Rp 3.25 trillion in 2001, while
their credit card financing reached only Rp 431.89 billion and Rp
796.14 billion respectively. Out of the credits extended for
factoring and credit card payments in 2001, 66.2 percent and 22.8
percent respectively went sour, according to Bank Indonesia in
its annual report.

Susilo said a major problem encountered by financial service
companies was the scarcity of funds, which made it difficult for
them to expand business.

"Our major source of funds is banks," he said. "But banks,
which are still restructuring themselves, are reluctant to
increase their credits to us."

He said financial service companies were actually ready to pay
annual interest of some 18 percent, a level that would give a
high profit margin to banks.

Domestic banks extended Rp 11.85 trillion in credits to
financial service companies in 1996, Rp 15.45 trillion in 1997,
Rp 14.37 trillion in 1998, Rp 10.7 trillion in 1999, Rp 11.29
trillion in 2000 and Rp 14.18 trillion in 2001, while credits
extended by foreign banks were recorded at Rp 9.17 trillion, Rp
19.27 trillion, Rp 16.39 trillion, Rp 8.57 trillion, Rp 7.42
trillion and Rp 6.79 trillion respectively.

"We will encourage our member companies to raise fresh funds
by offering bonds to the public," Susilo said.

Bank Indonesia says in its latest annual report that because
consumer demand will remain strong this year, while the
intermediary function of commercial banks will improve, credits
for consumption needs are expected to continue expanding.

Total consumption increased by 6.2 percent in 2001 and is
projected to further increase by a range between 4.3 percent and
4.8 percent this year.