Local banks warned of tough competition

JAKARTA (JP): Acting Governor of Bank Indonesia Anwar Nasution warned local banks on Friday to be serious in improving the quality of their human resources and technology or risk being left out of the competition with the rising number of foreign banks here.

Anwar said that Indonesia was attractive to foreign banks because of the relatively large national savings level of around 17 percent of gross domestic product.

"Foreign banks have better technology. If we're not serious about making necessary improvements, it won't take long for their operations to expand even to remote places like Sipirok," he said referring to his birthplace in North Sumatra.

Anwar was speaking at the 14th congress of the National Private Banks Association (Perbanas).

"Citibank is everywhere. Even ABN Amro has opened a branch in Manado. This will be a problem for you (local banks)," he said.

Anwar said that during the 32-year rule of former president Soeharto, the human resources in the domestic banking industry had not been creative.

He added that many banks had also been reluctant to invest in technology because they could win lucrative businesses through political connections.

But he said that the environment now was changing with Bank Indonesia introducing the "fit and proper test," to prevent bad bankers from reentering the industry.

Anwar said that some changes were now taking place in domestic banks with the entry of foreign bankers onto the board of directors as well as commissioners to introduce good corporate governance in the banks.

He pointed out that foreign bankers have accepted positions in Lippo Bank, Bank Danamon, and Bank Internasional Indonesia.

"Your business is about trust and information, so improving the corporate culture is crucial," he said.

"It is not enough for banks to be recapitalized. You must also upgrade your human resources and technology," he added.

The government has closed down a total of 66 banks since the financial and economic crisis started in the middle of 1997.

The government also has injected more than Rp 600 trillion worth of bonds to bail out the remaining banks.

Since the economic crisis, an increasing number of foreign banks have entered the country and have been aggressively expanding into places outside Jakarta.

Perbanas chairwoman Gunarni Soeworo admitted that foreign banks had advanced technology and modern products, which could seriously threaten local banks.

But Gunarni said that local banks could take advantage of knowledge about local culture and habits in the competition.

"The problem is, if the government immediately withdrew the blanket guarantee, would the public still put their money in local banks," she said.

The government introduced the depositor guarantee program in early 1998 to prevent massive runs on local banks. Under the program, the government has guaranteed all obligations of closed down banks including deposits.

The government has said that it would announce six months in advance if it intended to withdraw the guarantee. Eventually, the government plans to replace the guarantee with a deposit insurance plan.

"I expect the government to be wise when withdrawing the blanket guarantee," Gunarni said.

Meanwhile, one banker participant told Anwar that he was not afraid of the competition with foreign banks as long as they competed fairly.

He accused certain foreign banks of being unethical by promising potential depositors a free-tax time deposit in their overseas branches.

"I'm very encouraged when you say that you're not afraid of the competition. That's what I like to hear," Anwar said.

"As long as you know your market niche, you will be safe," he said.

Anwar also asked bankers to inform him of any violations committed by foreign banks. (rei)