It was interesting to
observe the relationship between stability of the banking sector and economic
growth of a nation. By theory or common senses, stability of the banking sector
was in parallel with economic growth. A strong and healthy banking sector
indicated high economic growth. The question was were the theory and logic
applicable in Indonesia, a deeper insight would be necessary for that matter.
So far stability of the banking industry up to June 2012
was still strong enough, although slightly under pressure compared to same
period last year. The central bank and bankers rated that Capital Adequacy Ratio
(CAR) of the banking sector by end of year was still above minimum standard set
by Bank Indonesia, in spite of high credit expectation.
Data of Bank Indonesia (BI) showed that Financial
Stability Index/FSI which indicated stability of the banking sector,
stockmarket and bond market in June 2012 was at level 1.7 points or up by 0.05
points compared to December 2011 at 1.65 points. To compare against same period
of 2011 at 1.68 points increase of index was only 0.02 points.
Condition of the banking sector this year was indeed
better than that in 1997 – 1998 when FSI was at the level of 3.23 points and
2.34 points when the subprime mortgage smashed America in November 2008. BI
record had it that the national banking sector was relatively more resistant
because exposure of portofolio credit to foreign investors was only 14%, mostly
from America, Singapore and China.
According to data of the Indonesian banking sector the
average CAR of general banks up to May 2012 was posted at 17.88%. Stress test
conducted by BI showed that if economic growth were at standstill, CAR of the
banking sector would drop by 237 basic points to become 15.51%. When worse
comes to worst if economic growth was -5%, CAR of the banking sector would drop
by 614 basic points to become 11.74%.
In terms of market risk, there were three points of
consideration i.e. increase of Rupiah bank interest, depreciation of Rupiah
exchange rate value, and price of SBN bonds. If Rupiah bank interest rate were
increased to 10%, CAR position of the banking sector would drop by 197 basic
points to become 16.91%. If Rupiah were depreciated by 50% CAR would only drop
by 21 basic points or at the level of 17,67%. If downturn of SBN price reached
35%, CAR dropped by 238 basic points to become 15.50%.
Based on worse scenario, there were some banks whose CAR
dropped to below the minimum margin set by Central Bank of 8%. However, most of
the banks were still resistant, because CAR of average industry was above 8%.
In this case BI must ask bank owners and shareholders to inject more capital.
Showdown of global economy and uncertainty in crisis
solution in Europe was predicted to start affecting demand for (Indonesia’s)
credit in Semester II – 2002. Credit for export was the payment segment most
potential to be affected by global economic slowdown. Credit for working
capital (KMK) would also slowdown in line with weakening of domestic economy.
Credit for consumption would predictably not as impressive as in Semester
I-2012. The Loan to Value (LTV) rules could cause credit for consumption to
slowdown.
Credit for investment was the credit sector growth of
which was promotable in Semester II-2012. Credit for investment could grow
especially in infra structure development. Initiative in infra-structure projects
would drive credit for investment (KI) to grow, although land clearing was
still a hard-to-solve problem.
To anticipate credit downturn, it was advisable for banks
to re-address their credit from export oriented companies to companies oriented
to the domestic market. To anticipate CAR downturn the banking sector could
take various measures such as releasing rights issue, issuing subordination
bonds or asking for capital injection from shareholders.
Hence it seemed reasonable if bankers were optimistic
that the banking industry could still grow higher. Credit through Semester II
could still grow by 20%. Through Semester I 2012 credit growth was posted at
around 25\8%. The only thing was that upon entering this Semester II banks
should be careful in responding to economic slowdown as projected by many international
institutions like the World Bank, IMF and ADB.
The banking industry should focus attention on premium
economy that dominated prevalent contribution in forming Gross Domestic
Products (GDP). The sectors of communication, trading, hotel & restaurants
and processing industry became were four of the greatest contributors to GDP.
Unexpectedly and surprisingly the agricultural sector
were lowest in terms of contributors due misperception of banks that these
sectors were high risk sectors. For that matter bank regulators and the
Government must give comprehensive portrayal and understanding of the
agricultural sector to the bankers so that the ingrained perception could be
changed.
In accordance with the belief of “bank follows industry”
it was best for the banking sector to abandon the wrong philosophy. The
economic sectors of high potential and sustainable growth were the sectors
worth financing because the risk was controllable.
Beyond other sectors the sectors of hotels &
restaurants, processing and services were the greatest users of credit
facilities. This was still good because the three sectors were tradable sectors
as well as labor intensive by nature. In the future, other labor industry
sectors like agriculture, mining, and infra structure must be spurred on by
injecting more credit so they could sustain better economic growth.
With credit growth through Semester I-2012 at 28%; while
the projected economic growth of Semester I-2012 around 6.3%, it indicated that
support of the banking sector to economic growth was not maximized. Why? At
least there were two contributing factors. Firstly, part of credit facilities
were still addressed to non tradable sectors. Secondly, part of the credit
facilities extended by banks were not or not yet liquidated by the debtors
(know as undisbursed loans which was 30% of total given credit amounting to Rp
2,050 trillion or equal to Rp 600 trillion) due to liquidation phasing factor
and difficulty in clearing land for developing infra-structure projects.
With credit pipelining being more oriented to the labor
intensive sector, contribution of the banking sector to economic growth would
be even greater. By theory, every 4% of credit growth would sustain 1% of
economic growth. So if Semester I-2012 size of credit growth was 28%,
supposedly it was able to sustain economic growth of 7%.
Somehow in reality the realization of credit growth was
only 6.3%. This means there was a missing link between credit growth and
economic growth because of credit distribution being more aimed at tradeable
sectors or labor intensive sector. Therefore, banking regulators together with
the Government must direct and encourage banks to be more aggressive in
financing tradeable sectors so economic growth could be jacked up higher.
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