SBIs draw Rp 50t in excess liquidity, says banker

The Jakarta Post, Jakarta

Amid a prolonged dry spell in private investment, potential additional loans could amount to some Rp 50 trillion (about US$5.4 billion), according to a banker who says that money is overinvested in Bank Indonesia promissory notes (SBIs).

Bank Danamon president director Arwin Rasyid says that risk- shy banks preferred to invest in Bank Indonesia promissory notes rather than risk new loans.

This led to excess liquidity, with "banks' liquidity capacity for injecting new loans amounting to some Rp 50 trillion," Arwin told reporters on the sidelines of a banking seminar last week.

But keeping excess cash at Bank Indonesia neither earns banks healthy profits nor helps the overall economy.

Fresh loans are badly needed to drive expansions in a number of sectors where consumption is recovering from the 1997 economic crash. Electricity demand, for instance, has regained its double digit growth but the absence of new power plants now threatens the country with a power crisis.

Banks have yet to resume their lending role after the banking industry crashed under a mountain of bad debts from the 1997 economic crisis.

Five years after, debt restructuring among companies is slow, whereas prudential banking has taken a stronger foothold within the industry.

"Bankers sleep better knowing their money is with Bank Indonesia rather than somewhere out there," Arwin told seminar participants.

This, he said, resulted in most banks stashing their clients' money with Bank Indonesia even though promissory notes carry lower interest rates than loans.

Banks have accumulated around Rp 800 trillion in public funds, but of that amount less than half is channeled to the private sector as loans.

Arwin said that even if banks wanted to create secondary reserves on top of the mandatory 5 percent minimum reserves with Bank Indonesia, they would still end up with Rp 50 trillion in excess liquidity.

Bank Indonesia statistics in September show that it issued a total of Rp 97.49 trillion worth of promissory notes.

"As a rule of thumb, secondary reserves should be 5 percent, so that of the Rp 800 trillion, banks would need to set aside Rp 40 trillion," Arwin said, explaining that subtracting that amount from the around Rp 90 trillion banks had invested on promissory notes would reveal excess investment of Rp 50 trillion.

Next to overspending on promissory notes, banks also maintain reserves at Bank Indonesia that exceeds the mandatory amount, according to central bank statistics.

Banks' excess liquidity, which is surplus of the required reserves and the actual reserves, total Rp 11.7 trillion.

Since early this year, Bank Indonesia has been lowering its promissory notes rates. This has helped banks shift their money away from SBIs, although with Rp 104 trillion in January to Rp 97 trillion in September, the reduction is relative small.

But as Arwin has said, the main impediment to increasing lending to the private sector is the persistent bleak economic outlook.

Analysts have said that companies also need to first sort out their piles of debts from the 1997 economic crisis.

Banks injected some Rp 40 trillion in fresh loans into the economy last year, and Bank Indonesia has estimated another Rp 60 trillion in loans throughout this year.