Senior executive criticizes govt banking policies

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)