Commercial banks can promote equity investment

Commercial banks can promote equity investment

JAKARTA (JP): Indonesia's commercial banks can help inject
badly needed blood into the local capital markets by promoting
equity investment to their customers, a banking analyst says.

I Nyoman Moena, the Local Private Banks Association's
supervisory board's chairman, said on Saturday that banks can
offer customers stock investment as a new product, in addition to
their traditional products, such as time deposits.

"Banks already have the skills to assess risks in many kinds
of debt instruments. Why don't they use them on stocks for the
benefits of their customers," Moena told The Jakarta Post.

The equity investment plan would also activate local stock
markets and improve their domestic investors base, he said.

This would also circumvent the 1982 Banking Law, which bars
banks from putting their own money into stocks, he added.

Indonesia now has two capital markets: the Jakarta Stock
Exchange and the Surabaya Stock Exchange in Surabaya -- both have
been depressed because of lack of investors.

With only 400,000 domestic investors taking part in the two
stock exchanges, Indonesia is a sore spot among the region's
emerging markets.

Malaysia has some four million domestic investors; India has
40 million and China, whose exchanges are newer than Indonesia's,
books over 10 million investors. Almost 50 percent of Singapore's
3.1 million populations are recorded as stock investors.

With little interest growth among local investors, the Jakarta
and Surabaya exchanges have been propped up by foreign investors.
Statistics show that domestic investors account for only 30
percent of all transactions, and the proportion is declining.

Chairman of the Indonesian Public Companies Associations,
Rosano Barack, recently called on the monetary authorities to
allow banks to enter equity investment to help boost the domestic
investors base.

President of the Jakarta Stock Exchange Hasan Zein Machmud has
also suggested that the government allow banks to invest a
portion of their short-term funds on the capital markets.

Bank Indonesia Governor J. Soedradjad Djiwandono said last
week that the central bank firmly believes that banks should not
be allowed to invest their money in stocks, either directly and
indirectly through margin trading.

"As long as the law doesn't permit banks to invest in stocks,
it will be fruitless trying to persuade the monetary authorities
to ease the regulations on the matter," Moena said.

But the law does not prevent banks from offering customers
more choices in investing their money, either in fixed-income or
equity instruments.

"Banks have to hire special experts in stock analysis if they
want to start offering equity investment to customers. They have
to promote it as profitable investment instruments," Moena said

Moena said banks can increase their fee-base incomes without
exposing themselves to stock fluctuation risks.

Hendri Kurniawan, a senior vice president of the publicly-
listed Bank Bali, said he believed that banks are ready to enter
equity investment businesses.

"In terms of managing funds, banks are more advanced than
pension funds and individual investors," Hendri said.

He said, however, that it would not be easy for any bank to
launch new products in relation to stocks investment. Banks,
wishing to enter such products, will have to hire special experts
in the matter.

At present, Hendri said, Bank Bali does not have any plans to
introduce new products related to stock investment.

Moena, however, made a compelling argument as to why
commercial banks should expand into equity investment: To create
new markets and new sources of income, which are crucial because
banking competition is becoming fiercer.

If the banks can disseminate information on the benefits of
stock investment to their customers, "it can be a very profitable
business", Moena said.

He said expanding into stock investment service does not
violate the banking law because banks will act as trustees to
keep their customers' money and invest it in stocks either
directly or indirectly through securities companies. (08/rid)