Rp 50t may leave banking system

JAKARTA (JP): At least one-sixth of some Rp 300 trillion (about US$42,85 billion) could leave the banking system over the next year due to low interest rates, an economist predicted here on Monday.

"There will be at least Rp 50 trillion leaving domestic banks for the purpose of investment diversification," said Budi Hikmat of PT Bahana Securities.

Budi said on Monday people were looking for other forms of investments other than time deposits, which offered yields of up to 12 percent per annum.

He also said most of the Rp 300 trillion was in short-term time deposits, which indicated a lack of confidence in the banking sector.

According to data from Bank Indonesia, as of October 1999, 69.5 percent of the Rp 293.7 trillion was in one-month time deposits.

Interest rates, which jumped to 70 percent per annum at the peak of the economic crisis, have significantly dropped as the economy has improved. This has caused time deposits and savings accounts, which offer interest rates of between 10 percent and 12 percent, to lose their luster.

Budi said people did not want to put their money in banks for the long term, but were unaware of investment alternatives which offered higher returns.

If these time deposits are withdrawn, it is important that the funds be channeled into productive sectors such as the equity and debt markets to curb a rise in inflation, he said.

He warned that Indonesians traditionally invested in automobiles, land and houses.

Budi said there needed to be a greater effort by securities companies to educate the public on investing in the capital and debt markets.

The flow of funds out of the banking sector should be properly channeled to further the country's economic development, he said, adding that investing the funds in the bond or securities markets would help revitalize the country's ailing industrial sector.

However, he said it would require an extra effort by securities companies and related organizations to convince the public that the capital market was not only safe but also gave higher returns than time deposits.

If the public is not convinced of this, the country's financial institutions cannot carry out their function as an intermediary between businesses which need loans and people who wish to invest their money in the form of fund savings, Budi said. (udi)