State banks record poor returns on assets, equities
JAKARTA (JP): The rate of return on assets and equities at Indonesia's state-owned banks were the lowest in all of Asia, a visiting British expert says.
Robin Monro-Davies, a managing director of the London-based International Banking Credit Analysis (IBCA) credit rating agency, told a business luncheon here on Tuesday that his agency has found out that Indonesia's private banks had a better performance than state banks.
"Indonesia's private banks ranked the fourth in Asia after those the Philippines, Thailand, Hong Kong and Singapore," he said.
He said that according to IBCA's studies, the average rate of Indonesian state banks' returns on assets steadily declined to 0.28 percent in 1992. This fell from 0.33 percent in 1991 and 0.66 percent in 1990, while the average rate of returns on assets of private banks fell to 1.59 percent from 1.18 percent and 0.96 percent.
The 1993 figures are not yet available.
He said that banks in the Philippines posted the highest record in the rate of return on assets at 2.28 percent, followed by Hong Kong with 1.47 percent and Thailand with 1,44 percent, Singapore with 1.01 percent and Taiwan with 0.55 percent.
Monro-Davies said that Indonesian state banks also recorded the lowest level in the rates of return on equity with an average of 8.41 percent in 1992, as compared to 15.11 percent in 1991 and 26.46 percent in 1990.
The agency gave better marks to Indonesian private banks with an average rate of 12.30 percent in 1992 and 10.89 percent in 1991.
Philippines banks posted a slight decline in their average rate of return on equity to 24.81 percent in 1992 from 28.96 percent in 1991, followed by Hong Kong which recorded an increase to 22.83 percent from 21.41 percent, Thailand with 20.73 percent from 15.85 percent, in Taiwan with 17.01 percent from 12.80 percent, and Malaysia with 12.09 percent from 10.69 percent. The average rate of Singapore banks declined to 9.94 percent from 10.30 percent.
Uncertainty
Monro-Davies said that the poor returns of Indonesian banks have been partly due to the uncertain situation of the Indonesian banking industry.
"I have no detailed analysis on the Indonesian banks but this sort of case usually happens to banks which are open to political influence where there is not adequate profit motivation," he told The Jakarta Post.
In addition, a lack of transparency and disclosure of information on Indonesian banks' performances might lead to the bad situation.
The existing non-performing loans held by the country's state banks are a good examples of what happens in the absence of the proper supervision and transparency in the banking industry, he pointed out.
"But, I believe, many changes have been made now by your government to improve the situation," he said, commenting on the country's decision to set up a new credit rating agency PT Pemeringkat Efek Indonesia (Pefindo).
Responding to the poor assessment of the Indonesian banking system in Standard & Poor's, a New York-based credit rating agency, he said that the evaluation has been made correctly by professionals who knew a lot about the Indonesian banking situation.
"What they have said was not wrong. But I don't think that it will have a detrimental effect on the Indonesian banks," he said.
Standard & Poor's reported in its recent ASEAN Banking Profile that Indonesia's banking system is facing a period of financial stress partly due to the banking reforms introduced by the government in the late 1980s.
The agency gave worst marks on the performance of the country's state banks, in what it said was a high risk environment caused by high non-performing loans, high loan concentration and low capitalization.
Chairman of the Stock Market Supervisory Board (Bapepam), Bacelius Ruru, said Tuesday that the establishment of Indonesia's first credit rating agency is part of the government's efforts to improve the banking climate in the country. The agency is assigned to assess the issuers from their bond and commercial papers offered in the secondary markets. (fhp)