Central Bank finds 30 percent of secondary banks unhealthy

JAKARTA (JP): More than 30 percent of secondary banks (smaller, mostly rural banks) are unhealthy, according to Murti Wijono, the chief of secondary bank supervision at Bank Indonesia.

Wijono said yesterday 44.5 percent of the 1,990 secondary banks under the central bank's supervision were classified as healthy, 21.4 percent as relatively healthy, 14.4 percent as less healthy and 19.4 percent as unhealthy.

According to official data, there are 9,313 secondary banks throughout the country, including 5,345 under the supervision of Bank Rakyat Indonesia, 1,990 under the central bank's supervision and 1,978 under the supervision of local administrations.

The central bank had closed 42 unhealthy secondary banks in the last five years, Wijono told a workshop on secondary banks, organized by the Bina Swadaya development agency and Bank Danahutama.

Wijono said the main reasons for bank failure included sparse funds and poor management.

The workshop also launched the book 100 Tahun BPR di Indonesia 1895-1995 (100th Anniversary of Secondary Banks in Indonesia 1895-1995), published by Infobank magazine.

I Wayan Sadra, the chairman of the Association of Indonesian Secondary Banks, said the main problem faced by secondary banks was a lack of funds.

The problem could be solved by the development of alliances between secondary banks and commercial banks, he said.

He said a central bank regulation in 1993 had obliged all commercial banks to extend 20 percent of their credit to small businesses with a credit ceiling of Rp 250 million (US$105,932).

About 80 commercial banks have cooperated with 950 secondary banks to channel Rp 179.7 billion in credit to small business.

He said many secondary banks could not obtain credit for small businesses because commercial banks demanded collateral and imposed high interest rates.

He said the annual interest rates on credit for small businesses from state banks to secondary banks ranged from 18 percent to 19 percent, and from private banks it ranged between 21 percent and 23 percent.

Secondary banks, with total assets worth Rp 2.5 trillion, had raised Rp 1.5 trillion in private deposits by June, he said.

Secondary banks' total credits as of June amounted to Rp 2 trillion.(jsk)