Restrictions on banks using bourse will stay: Soedradjad

Restrictions on banks using bourse will stay: Soedradjad

By Benget Simbolon

NUSA DUA, Bali (JP): Bank Indonesia Governor Soedradjad
Djiwandono yesterday rejected demands to ease restrictions on
share trading by commercial banks.

"Be patient please. The time will come for us to allow banks
to be involved more in the capital market," Soedradjad told a
seminar on local investors' roles to increase capital market
investment, organized by the Indonesian Association of Issuers
(AEI).

The monetary authorities must be cautious in easing the rules
because it may destabilize the financial system, he said.

"Given the high risks in investments on the capital market, we
consider it important to limit banks' involvement in the capital
market," he said in his address to the two-day seminar.

He was commenting on a participant's request that banks should
be allowed to buy stocks, provide credits for share purchases on
the capital market and take paper as collateral.

Banks are allowed to provide custodian services, extend credit
to securities companies and use shares listed on stock markets as
additional collateral.

The monetary authorities want to extend the existing system,
he said: "There are still many things that we have to address
before letting banks increase their investments in the capital
market."

The banks must consolidate before they can branch into the
capital market, he said.

Soedradjad told reporters the government would not be rushed
into a hasty decision on the issue.

He admitted that some local banks may be ready to play the
capital market: "But we have to view the issue from all aspects."

Soedradjad said bank loans were losing their share of the
corporate funds market because more companies were turning to the
capital market.

This condition has encouraged banks to set up their own
securities companies, and pushed the government to let them
invest more in the capital market.

Soedradjad said once a bank established a securities company,
the public would relate its performance to its securities firm.

"Although the bank and its securities company are legally
separate, the public will lose their confidence with the bank if
its securities company is not doing well," he said.

Double gearing -- in which one fund is used in two different
businesses -- may happen in a bank with a securities company, he
said.

"The bank may be able to convince the monetary authority that
the two funds in the bank and the securities company are in line
with the government's requirements. But it could turn out
contrary to what the bank is trying to impress," he said.

Soedradjad said there was an argument for easier rules to
expose the market to more competition and therefore reduce
transaction and capital costs.

"Banks, as a result, will become more efficient and reduce
their investment risks," he said, adding that consumers would
also benefit.

Others believe easier rules would expose the banks to
excessive risk, which could destabilize the whole financial
system. This camp argues the securities business is much riskier
than banking.

Soedradjad said banks should be involved in the capital market
in a way that exposes them to minimal risks.