Local banks report better performance

Local banks report better performance

JAKARTA (JP): The condition of Indonesia's banking industry
continues to improve, with most banks reporting better
performances in March, according to Bank Indonesia.

Djoko Sarwono, the director for banking research and
regulation at the central bank, said here on Wednesday that most
of the country's banks booked wider positive spreads and a larger
pretax profit during the month.

The improvement of the country's banking sector was also
reflected by the fall in their non-performing loans (NPLs) and
the increased net equity positions.

"But the amount of new loans was still very small," Djoko
added.

Djoko said interest spreads in domestic banks increased to 14
percent in March from 8 percent in February, a good step towards
a return to profitability.

Spread is the difference between net interest income and net
interest expense.

"The better performance was paralleled by improved public
confidence in the domestic banking sector," Djoko told a press
conference.

The improved public confidence, Djoko said, was reflected in
the increase in third party deposits at domestic banks to Rp
705.7 trillion (US$87 billion) as of March 31, compared to Rp
690.8 trillion in the previous month.

In the same period, pretax profit increased to Rp 2.2 trillion
from Rp 700 billion.

With such performance, domestic banks managed to improve their
net equity positions to negative Rp 32.8 trillion in March from
negative Rp 38.9 trillion the previous month.

Djoko warned that although the banks continued to improve,
their loan portfolios were still not expanding.

"New loans reached only Rp 258 billion during March, compared
to Rp 280.3 billion in February," he said.

Total outstanding loans were actually down to Rp 268.7
trillion in March from Rp 280.3 trillion.

Bank Indonesia reports showed that bank funds parked in Bank
Indonesia's debt papers (certificates) rose to Rp 91.8 trillion
in March from Rp 90.7 trillion in February.

The decrease in the outstanding loans was attributed mainly to
writing-off of some loans from banks in the restructuring program
of the Indonesian Bank Restructuring Agency (IBRA).

The slow growth of new loans was partly because many banks are
still consolidating, thus, being very careful in extending new
loans.

"Domestic banks preferred to lend to other banks and invest in
government short term certificates of deposit (SBI's) rather than
to the real sector," he said.

In the interbank money market, the overnight interbank rate
rose slightly to 9.6 percent from 9.5 percent as Bank Indonesia
absorbed Rp 17 trillion in one-month Sertifikat Bank Indonesia
notes at higher rates of 10.91 percent, as against 10.88 percent
last week.

Bank Indonesia said it also auctioned Rp 8 trillion in three-
month SBI notes, above its target of Rp 7 trillion, at a rate of
10.91 percent, down slightly from 10.93 percent last week.

Debt restructuring

Besides, he said, vast amounts of domestic debts are not yet
restructured, making the real sector, in general, unprepared to
receive loans.

"Debt restructuring is the key to the full recovery of the
real sector," he said.

He said that because of such unsolved problems, the
intermediary role of domestic banks was not functioning well.

BI has worked in a joint force with IBRA, the Indonesian Debt
Restructuring Agency (INDRA) and Jakarta Initiative Task Force
(JITF) to intensify domestic debt restructuring efforts.

"The joint force will soon sign debt restructuring agreements
with four corporations worth a total of US$1.5 billion," he
said.

In the face of this good news, the rupiah has continued its
recent declines. After hitting an intraday high of IDR 8,210, the
dollar was trading at IDR 8,185, compared with its close Tuesday
at IDR 8,070. Regarding the stumbling rupiah, BI's senior deputy
governor Anwar Nasution said BI would intervene in the market to
support the local currency.

"It is not right that BI do nothing to defend the rupiah's
fall. We will intervene; BI is capable financially," he said.

"We have ample foreign exchange reserves. We will do it
(intervening) accordingly," he added.

However, Anwar said the rupiah would strengthen by early June
when Indonesia signed the next Letter of Intent (LoI) with the
International Monetary Fund (IMF).

Signing of the LoI will effect release of the suspended IMF
loans to the country and fulfill the conditions set by the Paris
Club lender countries for Indonesia's debt rescheduling.

The Paris Club agreed last month to reschedule $5.8 billion in
Indonesia's sovereign debt, subject to IMF endorsement.

Anwar said the rescheduling would reduce the demand for
dollars in the domestic market, giving a positive impact to the
rupiah against the U.S. dollar.

However, Anwar declined to forecast the level of the rupiah
against the greenback during the period following the signing of
the LoI. (udi)