RI not ready for ASEAN financial liberalization

RI not ready for ASEAN financial liberalization

JAKARTA (JP): The weak capitalization of Indonesia's banks and
insurance companies will inhibit them competing in other ASEAN
countries when the financial services within the group are
liberalized, bank executives said yesterday.

Executives of Bank Rama, Bank NISP, Asuransi Astra Buana and
Asuransi Central Asia warned that weak capitalization would make
it hard for local banks and insurance firms to compete with
foreign companies even in the domestic market.

"I therefore fully support the suggestion that local banks
merge with each other to strengthen their capital," Bank Rama
president Putu Antara said.

Putu said with their current capital structure not one
Indonesian bank could establish branches in Malaysia, Thailand or
Singapore.

"But it would be easier for banks from those countries to
enter Indonesia when the barriers to financial services trade
have been abolished," Putu said.

Indonesia has 239 commercial banks and almost half are foreign
exchange banks. The minimum capital requirement for a foreign
exchange bank in Indonesia is only Rp 150 billion (US$62.4
million) compared with $700 million in Singapore.

At their meeting in Phuket, Thailand, over the weekend, ASEAN
finance ministers reaffirmed their commitment to further
liberalizing their financial services sectors.

Many ASEAN countries, including Indonesia, have strongly
protected their financial services sectors, arguing their markets
were not mature enough to withstand competition from abroad.

The problem for Indonesia's insurance sector is even worse. It
also has too many insurance firms with weak capitalization. The
minimum authorized capital for general local insurance firms is
Rp 3 billion and for life insurance firms Rp 2 billion.

Teddy Hailamsah, president of general insurance firm Asuransi
Central Asia, has said the government should make insurance firms
to increase their capital to enable them to underwrite large
projects, thereby reducing premium outflows.

"The problem in our insurance industry is the mentality of
those running the businesses. Most of us are less committed to
the industry because we put less capital there.

"If we were required to put more capital into the industry, we
would be more committed to our business because we put more money
at stake," Teddy said.

Asuransi Astra Buana president Willy Suwandi Dharma supported
Teddy's proposal, stressing that with their current capital
structure local firms were too weak to compete.

"On one hand, we feel we are not yet ready if the sector is
opened because it will let foreign insurance firms dominate our
market. However, only liberalization will force us to improve our
competitiveness," Willy said.

Efficiency

To improve local banks' competitiveness Bank NISP president
Pramukti Surjaudaja suggested banks improve their human
resources, efficiency and soundness so they can achieve high but
sustainable growth despite having less capital.

Pramukti said the central bank should make a concerted effort
to reduce local deposit and lending interest rates to the most
competitive level in ASEAN.

Interest rates in Indonesia's banking system are among the
highest in ASEAN. This will make local banks less competitive
when liberalization starts.

Putu Antara agreed and said local banks also needed to
strengthen their internal systems and procedures, product
systems, information technology and market niches.

"If a bank is strong in retail banking, for instance, it
should concentrate on that business so it becomes stronger in
that sector. So when liberalization comes into force the bank can
survive and win the competition," he said.

No date has been set for the liberalization of ASEAN's
financial services sector. (rid)