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)