'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)