State banks record poor returns on assets, equities

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)