Indonesian banks give away phones to lure deposits

Indonesian banks give away phones to lure deposits

Wahyudi Soeriaatmadja, Bloomberg/Jakarta

Rachmat Fajri, owner of Indonesian cotton fiber company PT Wirahutama Famindo, wanted a new mobile phone. So he opened an account with PT Bank Mega and the lender gave him one for free.

"I couldn't resist," said Fajri, 32, who was given a top-of- the range Nokia 9500 Communicator last month when he deposited Rp 7.5 million (US$770), about the same as the retail value of the phone. "I needed a new mobile phone anyway."

Indonesian banks are offering prizes of cars, money and gold to boost deposits that have failed to keep pace with a boom in lending as the economy heads for its fastest growth in nine years. Competition for savings and the rising cost of alternative funds such as debt sales are causing lenders' profit margins to narrow.

"We assumed our savings accounts would grow as the overall pie grows," said Fero Poerbonegoro, a treasury director at PT Bank Negara Indonesia (BNI), the nation's third-largest lender. "Now the strategy must be how to steal other people's market share."

Loans at Indonesian banks rose 29 percent in the year ending May 31 to Rp 615.8 trillion, data compiled by the central bank show. Bank deposits in the same period rose 10 percent to Rp 986.7 trillion.

Consumers and companies such as PT Indosat, the nation's No. 2 phone operator, are increasing borrowing because Indonesia's $258 billion economy is forecast by the government to expand 6 percent in 2005, the fastest pace since 1996.

"With this kind of aggressive lending, banks need to be more careful by increasing their bad-loan provisions," said Baradita Katoppo, head of research at Kim Eng Securities in Jakarta. "The acceleration in lending creates greater risks."

BNI in June gave Rp 1 billion of cash each to 10 depositors who won a lucky draw, the lender said on its Website. The winners were picked at random from BNI's 6.8 million depositors. A second lottery is planned for November.

The bank may still struggle to achieve its target of 15 percent growth in savings accounts this year, Poerbonegoro said.

PT Bank Niaga, Indonesia's seventh-largest lender, is offering depositors coupons that will give them a chance to win 250 grams of pure gold. PT Bank Bukopin is hosting fashion shows to attract depositors.

Profit margins at banks are declining as rising interest rates raise funding costs. Time deposit rates rose to 6.9 percent in May from 6.6 percent in January, central bank data show. Lending rates fell to 14.5 percent from 15.1 percent.

The interest rate on the benchmark central bank one-month bill has risen 1.07 percentage points to 8.49 percent this year. The central bank has been guiding the rate up since March.

"We have to adjust our rates to depositors as the rate rises, but we can't do the same to our lending rates," said Peter Stok, president of Bank Niaga. "We risk losing our loan customers if we did that."

Niaga's net interest margin, a measure of the difference between what it earned on loans and paid for funds, narrowed to 5.9 percentage points in the first half of this year from 6.23 percentage points a year earlier, he said.

Banks have put bond sales on hold, citing rising borrowing costs. PT Bank Danamon, Indonesia's fifth-largest lender, on April 14 delayed the sale of Rp 2.5 trillion of bonds.

"Right now we are looking at the market, and as long as the pricing is right and the timing is right, then we can do it," said Vera Eve Lim, the bank's chief financial officer, in a telephone interview on Aug. 1. "It could be as soon as September, or it could be early next year."

A move by Bank Indonesia (BI) to reduce money supply to curb inflation also led banks to compete for depositors. BI has pledged to retain a "tight bias in monetary policy to keep inflation on track."

Base money, or total money in circulation plus reserve deposits at the central bank, had fallen 4.37 percent this year as of the third week of July, compared with a 0.4 percent gain in the same period last year, the central bank said.

Indonesia's inflation rate reached a 26-month high of 8.8 percent in March after President Susilo Bambang Yudhoyono's government cut fuel subsidies in a bid to trim the budget deficit. Consumer prices rose 7.4 percent in June. The government increased duties on cigarettes by 15 percent on July 1 to boost revenue.

Banks may be forced to raise lending rates to protect profit margins.

"We will see banks gradually increasing lending rates going forward," said Alvin Pattisahusiwa, who helps manage the equivalent of $310 million of Indonesian assets at Fortis Investments in Jakarta.

Customers may stay loyal or switch over to banks that offer such conveniences as a wide network of cash machines even if they don't match deposit-rate increases by rivals, said investors like Raymond Gin.

"Banks with a large branch and automated teller machine network have a greater chance of attracting lower-cost savings deposits," said Gin, who helps manage the equivalent of $102 million at PT Manulife Asset Management in Jakarta. "Otherwise, banks need to pay higher rates for time deposits to attract funds."

PT Bank Central Asia (BCA), Indonesia's second-largest lender by assets, has 3,020 automated teller machines across Indonesia, the nation's widest network. Even so, the bank is offering a lucky draw coupon to entice depositors.

Those who deposit Rp 500,000 stand to win a Suzuki Escudo sports utility vehicle or a Honda motorcycle in the draw.