Bankers who really go for profit rather than lowering bank interest were
reckoned to be accountable for the reluctance of economic growth in Indonesia.
Not just private banks, ironically Government banks must be the agents of
development but still they applied high bank interest.
Today the Indonesian banking system was in a favorable state thanks to
blooming economic condition. Evidently banks were posting better and better
economic performance. Moreover BI rate had come to 5.75% and inflation could be
below 5% by end of year so it was only reasonable that the banking sector
allowed more room for faster growth. Supposedly they could afford to extend
credit to finance the nation’s advancements in the future. Still ideally the
credit interest rate should be lower that the present high level. The lower the
bank interest, the better the potential to jack up higher economic growth.
As a matter of fact the banking system in Indonesia was oligopolistic by
nature. President SBY summoned directors of BUMN to the Presidential Palace where
he instructed them to lower credit interest, but they seemed to ignore the
command. Yet State owned [BUMN] banks were supposed to be the leader in
lowering bank’s interest as they commanded over 36% of the banking market at
national level.
Today the inefficiency level of Indonesian Banks were relatively higher
that that of other countries. This was reflected in operational cost against
operational income [BOPO] and net interest margin/NIM of Indonesian banks which
came to 85.42% and 5.91% respectively in 2011. The condition remained
relatively unchanged in 2012
For that matter, key performance index [KPI] over the Board of Director
of BUMN banks needed to be reviewed. The criteria was more than just their
contribution to determining size of dividend; a criteria as such would confine
them to profit-hunting to increase dividend rather than playing better role in
uplifting national economy. The point was that the national banking sector,
especially BUMN should not forget their mission as agents of national
development.
In case of BUMN banks, as majority of their shares were in Government’s
hands, their roles as agents of development must come first. The implementation
could be in many ways, such as credit pipelining for micro-and small business
with low interest, channeling of Corporate Social Responsibility etc.
Because the duty to serve as agent of development was shouldered by BUMN
banks, the criteria for performance appraisal must be repositioned and to be
more than just profit oriented. Perhaps additional criteria would be
necessary such as how many percent was
the productive credit, how many percent the of it was allocated for UMKM small
business, how many UMKM debitors had been nurtured and helped financially by
banks, how many job opportunities could be created and how many workers were
employed.
By combining the criteria between the profit-based and non profit-based
criteria as mentioned above, the directors of BUMN banks could be motivated to
be more aggressive in playing their roles as intermediary institutions.
In regard to the prospect of bank interest and economic growth there was
possibility that bank interest rate would be increased in case inflation rate
touched 5.5%. By prediction economic growth would be hindrance and was only
able to reach the range of 6.2% - 6.4% if the banking sector was unable to
channel out credit while business players were reluctant to apply for credit.
Inflation pressures were so far relatively under control although the conditions
tend to signal increase. Evidently in the first two months of this year annual
inflation was coming close to 5% due to increase of food prices and Basic
Electricity Tariff. Skyrocketing price of garlic and onion were allegedly the
cause of inflation. For the time being Bank Indonesia was still conservative
enough in holding BI rate at 5.75%.
However, in the event that inflation was beyond control, moreover the
polemics over pricing of subsidized oil [BBM] was turning loose; probably
inflation soared up due to panics. If this happened, and annual inflation [y o
y] could exceed 5.5%, most probably BI had to increase BI rate by 25 basic
points [bps] to become 6%.
Most probably BI would maintain BI rate at 5.75% although inflation had
exceeded 5.5% because BI facilities as instrument could be used for controlling
inflation. By increasing FASBI, let’s say 25 bps to become 4.5% it would make
banks that ran short of liquidity to borrow fund in the form of FASBI from BI
rather that from the public at interest above FASBI which was 4.5%. Banks could
also get short term loan facilities from other banks with FASBI as reference.
The calculation was when banks tend to avoid seeking fund from the
public which was usually based on high interest; they could still hold back
credit interest rate to encourage market players to apply for credit
facilities.
The problem was if inflation pressures turned out of control, like it or
not BI would increase BI rate to the level of 6% and onward according to
inflation rate. The consequence of increased BI rate was that soon or late
banks would response by increasing fund interest and further credit interest as
well.
All in all, the intermediary function would be hard do apply as cost of
fund was getting more expensive for banks while credit cost posed as extra cost
for bankers. In the end credit growth would be interrupted because credit gave
enough contribution to economic growth, so as credit expansion effort was
losing steam they would lower target projections of economic growth.
By referring to the rule of thumb where every 3.5% credit growth would
drive 1% of economic growth, so in case of slowdown in economic growth, so in
case of slowdown in economic growth by 3.5% it would lower projections of
economic growth by 1%. By this formula if the desired economic growth was
6.3%-6.8% in accordance with Government’s assumptions in APBN state budget
2013, the credit growth needed would be 22.05%-23.8% this is a conservative
calculation
There was a more moderate calculation as rule of thumb, i.e. where every
4% of credit growth would jack up 1% economic growth. So if economic growth of
6.3% - 6.8% was the target, the credit growth needed was 25.2% - 27.2%.
Projection of credit growth of above 20% could be realized if BI rate was in
the range of maximum 5.75% the way it was in the past one year. Through 2012
last credit growth reached 23% with BI rate above 5.75%.
Now it became a hard task for BI and the Government to keep annual
inflation from exceeding 5.5% or even 6% so credit growth could be in the range
of 22% - 25% to sustain target of economic growth of 6.3% - 6.8%. (SS).
Business News - March 27,2013.
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