RI's 'sick' banking sector a potential time bomb: Expert
RI's 'sick' banking sector a potential time bomb: Expert
JAKARTA (JP): Indonesia's "sick" banking industry is a
potential time bomb that could affect the economy, senior
University of Indonesia economist Anwar Nasution warns.
Anwar said at a seminar here yesterday that Indonesia's
banking industry had been very slow to cope with its long-
standing problems, namely a high level of bad debts -- especially
in the property sector.
"There are at least two signs of trouble ahead in our national
banking industry. The first is the series of bad debts in our
national banks which indicates the magnitude of bad loans in the
property sector," Anwar said.
Citing reports from PT Procon Indah, Anwar noted that
Jakarta's apartment and office building market had experienced a
significant over-supply. This condition will continue until 2000.
According to Bank Indonesia (the central bank), cumulative bad
debts in the property sector rose 39.2 percent to Rp 4.66
trillion (US$1.8 billion) at the end of last April from last
December.
The country's total bad debts were Rp 10.23 trillion, or 2.93
percent of outstanding loans which stood at Rp 349.77 as of last
April. And state banks have the largest portion of bad debts.
The second indication of trouble is the central bank's support
for a consortium of 13 state and private banks to be set up to
finance the national car project.
"It indicates the power our monetary authorities have to
direct credit allocation and banking portfolio quality," Anwar
told the seminar.
He commended the central bank's recent move to restrict loans
to the property sector to dampen speculation in the real estate
market.
But he criticized the government's write off of bad debts at
state-banks, especially at Bank Negara Indonesia (BNI) and Bank
Rakyat Indonesia (BRI), which he said was to make them look clean
so they could go public.
BNI floated 25 percent more new shares last November, while
BRI is in the process of going public.
"The financial condition of the two banks (BNI and BRI) looks
good because their bad debts were taken over by the state
treasury," Anwar said.
"It seems that this kind of cosmetic book-keeping will
continue to be done in the restructuring and merging of state
banks," he said.
He said the national banking industry was shackled by its own
internal weaknesses in selecting good debtors, administering
loans and collateral, and supervising credit use and collection.
Problems in state banks often stemmed from the intervention of
the bureaucracy, especially in the process of assessing
borrowers, he said.
Problems in private banks often arose when the owners used the
banks to finance their own projects without considering economic
viability and legal factors.
Anwar also noted that local banks were relying too much on
short-term funds to finance long-term investments such as
infrastructure, factories and property projects.
"This weak financial structure is a time bomb. If not dealt
with properly, it could explode anytime like that in Thailand,"
Anwar said.
He said that any crash in the banking sector would
automatically complicate the country's macroeconomic management
as foreign investors would automatically pull out their short-
term funds here.
But Indonesia's banking and macroeconomic fundamentals were
still better than those in Thailand, he said.
He argued that Jakarta's property market was a lot better than
Bangkok's, which saw acute over-supply and over-speculation.
Besides, the ratio of Indonesia's current account deficit to
gross domestic product, which was below four percent, was much
lower than the 8 percent in Thailand, he said.
Indonesia financed deficits with soft-loans from countries and
financial institutions grouped in the Consultative Group on
Indonesia, while Thailand used mostly commercial loans to fill in
the gap. (rid)