Senior executive criticizes govt banking policies

JAKARTA (JP): Most local commercial banks are unable to outline their long-term strategies for services in the face of globalization due to the government's inconsistency in its policies, an executive said.

I G.M. Matera, deputy president of publicly-listed Bank Bali, said last week that banks are often confused about the government's banking policies.

"In 1988, for example, the government started deregulation in the banking industry which resulted in the blossoming of banks. However, now the government has reversed its policy about regulating banks," Mantera announced after speaking at a seminar on free trade and added value, held jointly by Bali Inbank and SWA magazine.

Matera pointed out that the central bank's decision to raise the minimum paid-up capital for foreign exchange banks to Rp 150 (US$64 million) from Rp 50 billion contradicts its policy that limits banking credit expansion.

He said his bank last August issued 65 million rights shares and 37.2 million detachable warrants on the Jakarta Stock Exchange to raise more funds to meet the new paid-up capital requirement.

"We raised a lot of funds from the issuance of rights shares and warrants. And of course we have to invest the funds properly to satisfy our investors. Unfortunately, however, it is difficult investing such huge amounts because of the government's measures to limit credit expansion," Mantera said.

Bank Indonesia, the central bank, increased it requirement on a bank's reserve to 3 percent of risk-weighted assets last December from 2 percent in a move to limit credit expansion in the country.

In its drive to cool down the country's overheating economy, the government targets that credit extended by the country's commercial banks will grow by only 16 percent this year, down from last year's targeted 19 percent.

"With funds from our warrants and rights share issue, our credit expansion capacity this year actually stands at some 40 percent. However, we have to reevaluate our short-term strategy and adjust ourselves with the government's policy on credit expansion," Mantera said.

Owing to the inconsistency in the government's banking policy, banks cannot draft long-term goals and strategies. What banks can do is merely outline their short-term strategies to maximize short-term profits, Mantera said.

He noted that the danger of banks lacking long-term strategies is that they will not be ready to compete when free trade in services occurs.

Bank Indonesia Governor J. Soedradjad Djiwandono told local banks last week to outline long-term development strategies, and consider restructuring and mergers, to prepare themselves for free trade in services in both regional and global markets.

The governor explained that Indonesia has included the banking sector in the General Agreement on Trade in Services (GATS) negotiations, which are currently underway among members of the World Trade Organization.

In addition to the on-going negotiations on trade in services, Indonesia is currently also engaged in negotiations for free trade in services with the members of the Association of Southeast Asian Nations (ASEAN) under the ASEAN Framework Agreement on Services, in which Indonesia is committed to including the banking sector.

Commenting on Soedradjad's call, Mantera said both restructuring and mergers among local banks would be difficult to arrange.

He contended that banks can pursue restructuring only if they have long-term goals and strategies. Otherwise, restructuring would be fruitless.

Mergers between banks would also be difficult to arrange because it would involve two or more different cultures, Matera said. (rid)