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)