State banks' mart share likely to decline further
State banks' mart share likely to decline further
JAKARTA (JP): The market share of state-owned banks is likely to continue to decline next year, partly as a result the banks' slackness in meeting market demand, according to one prominent banking analyst.
Laksamana Sukardi, an associate director of the Economic, Industrial and Trade (Econit) advisory group, said yesterday that the market share of state-owned banks will fall further from the present level of 40 percent.
In 1978, state-owned banks controlled over 80 percent of assets, funds and credits in Indonesia's banking system.
The state-owned banks are Bank Rakyat Indonesia, Bank Bumi Daya, Bank Pembangunan Indonesia (Bapindo), Bank Expor Impor Indonesia, Bank Negara Indonesia (BNI) and Bank Tabungan Negara.
Speaking during a presentation of Econit's 1996 economic outlook, Laksamana said that the drop in the state-owned banks' market share was the result, not only of their moderate credit expansion, but also of their failure to adjust to the rapid changes taking place in the market.
"The state-owned banks' setback has also been caused by the World Bank's agenda," he added.
In 1993, the Ministry of Finance applied an equity loan of US$300 million from the World Bank to help the state-owned banks resolve their bad debts. The World Bank approved the loan application on the condition that the state-owned banks limit their credit expansion to a maximum of 15 percent over a certain period of time.
"Bapindo, most affected by the debt problem, was given a zero expansion requirement," he said.
Bank Bumi Daya was allowed to expand by no more than 10 percent, and Bank Expor Impor and BNI were allowed credit expansion of only 15 percent, he added.
Laksamana said he anticipated that state-owned banks would decline in importance in the Indonesian banking sector unless a breakthrough was made in strengthening their capital structures.
Regarding the country's banking industry generally, Laksamana said that the increase in the amount of bad debts and a lack of capital would remain major problems for most banks next year.
He said that bad debts are likely to continue to increase, given the fact that most commercial banks are still weak in their risk management.
Their over-exposure to the property sector and textile industry could further worsen the position of their bad debts, he added.
"The slowdown in the growth of the property sector and the decrease in the country's garment exports could pose a problem for the banks," he said.
He added that the banking industry would also see a sharp change in loan contributions from corporate to retail borrowers as the result of the change in the government's lending policy and the diversification of business groups' financial sources.
The change in the loan concentration would not only affect the business of state-owned banks, Laksamana said, but also major private banks, which at present still direct a large part of their loan portfolio to large business groups.
On the other hand, multi-finance companies, whose lending procedures are relatively less restrictive, will be able to better tap the market, meaning another blow to the banking system, he said.
Besides the challenges from the domestic market, the country's banking industry will also face stronger competition from overseas banks, Laksamana said.
Overseas banks are now strengthening their market foothold in Asian countries, including Indonesia, in anticipation of the regulatory liberalization in the financial sector, he said.
"It means that Indonesian banks should not only have larger capital but also more overseas offices," Laksamana said. (hen)