'Limit commercial banks' operations'

'Limit commercial banks' operations'

JAKARTA (JP): The Federation of Indonesian Secondary Banks (Perbarindo) yesterday asked the government to limit commercial banks' operations in regional districts.

The federation's chairman, I Wayan Saswa, said that the establishment of commercial banks' regional branches has caused the collapse of many secondary banks, which have less capital and poorer management.

He did not say how many secondary banks had gone bankrupt because of competition from commercial banks, but he did say that the number would increase if the government failed to help secondary banks.

"It seems that the government pays no attention to help us at all," he told a hearing of the Commission VII for trade and finance at the House of Representatives (DPR).

He said the government's widely published programs to help poorer companies are an empty promise for secondary banks.

The government has initiated a number of programs to help small-scale companies, such as the requirement for commercial banks to allocate at least 20 percent of their loans to small- scale businesses. The government also requires state-owned companies to set aside one to five percent of their profits for similar purposes. This is in addition to the government's appeal for conglomerates to provide financial assistance to smaller businesses.

"It is quite ironic that the government has never involved us in such programs. Secondary banks, whose mission it is to support the rural economy, should actually be privileged by government to channel such financial aid," he said.

The secretary of the federation, R.P. Soeroto, said that most secondary banks now "bought" money from commercial banks to support their lending activities instead of raising funds directly from the public.

"Rural depositors now prefer to place their money in more trustful commercial banks and, as a result, we have to buy funds from those banks to finance our lending activities," he said.

Soeroto said that secondary banks should, in turn, impose lending rates of up to 36 percent per year in order to cover the costs of capital and high overheads.

Unlike commercial banks, secondary banks serve their customers from door to door. These customers generally make weekly loan repayments.

He acknowledged that high interest rates have resulted in increased lending risks.

"Many loans turn sour as a consequence, but this is a risk we have to face if we want to survive," he said. He also said that conditions would not deteriorate if the government provided subsidized loans to cooperatives.

He said that the government should at least ask state-owned companies to channel their financial aid to small-scale companies through secondary banks.

Oka Yana, a representative of Bali's secondary banks, said that the provinces' secondary banks suffered continual financial setbacks over the last two years because of growing competition from commercial banks. Over 20 percent of Indonesia's secondary banks are based in Bali.

"Many of the secondary banks in the province were liquidated because they were unable to compete in the tighter market," he said.

Secondary banks, established with a minimal capital requirement of Rp 50 million (US$21,740), may only operate in one district. Such banks must increase their capital to Rp 1 billion to operate in the capital of a regency, to Rp 3 billion to operate in a provincial capital and to Rp 10 billion to operate in Jakarta.

Indonesia's 1,900 secondary banks provided loans of around Rp 1.79 trillion ($778 million) last year. This is only 0.66 percent of total bank lending.(hen)