Financial service industry to grow slower: Association

Financial service industry to grow slower: Association

The Jakarta Post, Jakarta

The continued depreciation of the rupiah against the U.S. dollar
will put the brakes on the rapid development of the country's
financial services industry, cutting its growth by more than half
this year, an industry player says.

The financial services industry, which grew by 37.1 percent in
value from Rp 39.3 trillion in 2003 to Rp 59.3 trillion in 2004,
may expand by just 11 percent to Rp 60 trillion this year, the
secretary-general of the Indonesian Financial Services
Association, Dennis Firmansjah, said on Wednesday.

The rupiah closed at 10,271 to the dollar on Wednesday, its
lowest level since February 2002. The rupiah has fallen by about
8.5 percent in 2005.

The rupiah's weak footing against the American dollar will
cause the prices of goods and Bank Indonesia's key interest rates
to rise, which in turn would weaken demand for consumer goods,
especially automobiles, Dennis explained.

According to the Ministry of Finance, the financial services
industry consists of the financing of consumer goods (86.1
percent) and leasing, factoring and credit card services (13.9
percent).

Dennis believes the depreciation of the rupiah will discourage
people from buying automobiles and motorcycles, whose prices will
eventually go up, dampening demand for the financing of vehicle
purchases.

The rupiah's slide will also make lending more expensive, in
line with the expected rise in the central bank's benchmark
rates.

A press report last week said multifinance companies were
being forced to increase their interest rates by between 1
percent and 2 percent as Bank Indonesia increased its key
interest rates from 8.71 percent to 8.75 percent

Another factor with the potential to slow the financial
services industry's growth is the absence of laws regulating
multifinance companies, Dennis said.

This tends to create unfair competition among the players in
the industry because of the lack of rules, he said.

"In comparison, a new country like Kazakhtan already has a law
on the multifinance sector," he said, adding that currently the
local industry was regulated only by decrees issued by the
finance ministry.

A senior official at the ministry, Ngalim Sagewa, said Bank
Indonesia and the government had prepared a draft law on
multifinance companies, as mandated in Article 34 of Law No.
3/2004 on Bank Indonesia, but he could not say when the law would
be passed.

The law on Bank Indonesia stipulates that a new and
independent supervisory agency for financial services should be
established before Dec. 31, 2010. (006)