Uncertainty to further hurt banking industry: Analysts
Uncertainty to further hurt banking industry: Analysts
JAKARTA (JP): The uncertainty surrounding the government's
economic policy will further drag down the ailing banking
industry, economists have warned.
Eugene Keith Galbraith, an independent commissioner at Bank
NISP, said here on Wednesday that the government's economic
policy had failed to provide a necessary direction for local
banks to cope with their financial hardships.
He said that a series of reshuffles in the government's
economic team had often put business players in the dark as each
minister tended to have different priorities in managing the
country's economy.
"Such uncertainties should be removed if the government wants
to see the banking industry fare better in the future,"
Galbraith said after Bank NISP's annual shareholders general
meeting.
In the meeting, the bank's shareholders approved the
appointment of Michael J. Higgins as new commissioner
representing International Financial Corporation, and Surjawaty
Tatang as a new director.
Galbraith said the reshuffles, especially in the economic
team, were too frequent and had made the government lose its
momentum in coping with economic problems, as can be seen in the
continued fall in the rupiah to the U.S. dollar.
He acknowledged that although the rupiah was greatly affected
by nonfinancial factors, such as the country's political
conflicts, the central bank should also be responsible for the
weak rupiah.
He said that the rupiah's continued decline had forced the
central bank to push up interest rates in a bid to prevent the
currency from further falling.
Banks have had no choice but to follow the high interest rate
policy although such moves caused a severe blow to their
operations, he said.
"With high interest rates, banks cannot execute their
intermediation function properly to provide loans for
businesses," he added.
In such a situation, it would be difficult for the banks to
stand on their own feet, although many had received a capital
injection, albeit only in the form of bonds, from the government.
He said the current gloomy situation had also discouraged
foreign investors from joining the country's banking activities.
"The policies confuse foreign investors about where the
government really wants to go," Galbraith said.
Amitava Banerjee, an IFC representative for Indonesia, said
that the country's weak legal system also discouraged investors
from entering the local banking industry.
"This is a very important issue for investors," he said after
the meeting.
IFC is one of Bank NISP's institutional shareholders, with a
9.61 percent holding.
Citing an example, Banerjee said the cancellation of Standard
Chartered's purchase in Bank Bali in 1999 indicated the weakness
in the country's legal system.
Therefore, the government should speed up the legal and
judicial reform to encourage both local investors and foreign
investors to the banking industry, he added.
Bank NISP president Pramukti Surjaudaja said that the bank
projected an unconsolidated net profit increase of between 10
percent and 20 percent this year from Rp 36 billion in 2000.
He said the bank planned to extend Rp 1.5 trillion in new
loans this year, 80 percent of which would be channeled to small
and medium-sized businesses, and the remaining 20 percent would
go to consumer financing.
The fresh loans would raise its total credit outstanding by 50
percent to Rp 4.5 trillion at the end of this year, from about Rp
3 trillion at the end of 2000, Pramukti said.
The bank also plans to open between 10 and 20 new branches in
Jakarta, Bogor, Tangerang, Bekasi, Bandung and major cities in
Sumatra this year.
Parwati Surjaudaja, the vice president of Bank NISP, said that
the bank had budgeted between Rp 500 million and Rp 2 billion to
establish a new branch. (05)