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.