Indonesian banks forced to face global competition

Indonesian banks forced to face global competition

JAKARTA (JP): Indonesian banks have to seriously prepare
themselves as they enter an era of free trade in services early
next year, when the new GATT principles go into effect, Bank
Indonesia Governor J. Soedradjad Djiwandono says.

"Indonesian banks have to improve competitiveness as there are
more and more competitors waiting at the doorstep," he told
journalists after addressing the 11th general meeting and seminar
of the Asian Bankers Association here yesterday.

Soedradjad said in his address at the meeting that with the
implementation next year of the new General Agreement on Tariffs
and Trade (GATT), market competition will become more intense.

"As we are all aware, the Marrakesh accord involves not only
commodity trade, but also Trade on Related Investment Measures
(TRIMs), Trade on Related Intellectual Property Rights (TRIPs)
and trade in services as well," the governor said, referring to
the new GATT which was signed in Marrakesh last April.

Soedradjad said banking competition will be even tougher as
financial sectors in the world become globalized and national or
regional borders begin to blur, since borders now move "as the
sun rises and sets."

In terms of financial globalization, the role of conventional
banking in financial intermediation has been decreasing due to
the emergence of non-bank financial intermediaries such as
pension funds and mutual funds, he added.

There are also fund resources which can undermine the role of
banking, such as commercial papers, bonds or stocks, according to
the central bank governor.

"From the macro-economic point of view, the trend is
promising, it is a diversification in financial structure. But,
from banking sector, it means tougher competition," the governor
said.

Besides Soedrajad, the two-day seminar yesterday also
presented Minister of Finance Mar'ie Muhammad, American
Ambassador Robert L. Barry and economist Mari E. Pangestu. Henry
Kissinger, a former U.S. secretary of state, is scheduled to
address the meeting today.

Adjustment

Minister Mar'ie noted that Indonesian banks which have
experienced some problems of institutional failure have
difficulties in adjusting themselves to the new and more
competitive environment.

He pledged that his ministry is committed to restoring all
state-owned banks to sound footing and to improving the quality
of their credit portfolios.

"We are making strong efforts to move state-owned banks toward
eligibility for listing in stock exchanges," Mar'ie said in his
keynote address at the seminar, which was attended by some 140
bankers from 14 Asian and 7 non-Asian countries.

Economist Mari, however, questioned the readiness of the
Indonesian banking industry to enter the era of free trade in
services, either regionally or internationally.

"If we have to compete with banks in Singapore or Hong Kong, I
don't think we are ready to do so as they are more advanced in
many ways than we are here," Mari told journalists.

She noted that loopholes in Indonesian banking rulings,
corruption as well as collusion among bankers, bureaucrats and
businessmen have hampered the development of Indonesia's banking
industry.

When asked, Soedradjad admitted that the Indonesian banking
industry still works within inadequate legal frameworks. "Be
patient, we cannot mend them all overnight." (rid)