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)