Wednesday 3 June 2015

ECONOMIC SLOWDOWN SUPRESS BANK’S PERFORMANCE



National economic condition which slowed down over the past 3 years was beginning to generate chain affect to the banking sector. Some big bank were booking profit slump in Q-1 of this year. This bank of biggest asset was only able to make profit growth of 4.3% to become Rp.5.1 trillion of the same period in 2014 at Rp.4.9 trillion. For comparison, in the first 3 months last year Bank Mandiri stall made profit of 14.5%.

Bank Mandiri’s profit slowed down because down because ratio of NPL increased by 200 basic points to become 0.89% which forced Bank Mandiri to set up provision amounting to Rp.1.5 trillion, higher than the same period of last year at Rp.1.2 trillion.

At the same time, fund expenses increased by 35.3% to become Rp.6.85 trillion. The result was that Net Interest Margin was eroded by 0.3% and yet in term of income, Bank Mandiri still managed to book notable growth, In Q-1, income from interest increased by 19.6% to become Rp.17.12 trillion. Fee based income grew by 9,9% to Rp.3.87 trillion. Similarly credit pipelining still grew by 13,3% to become Rp.532.8 trillion.

Previously Bank Danamon ws also suppressed early this year. Profit of Bank Danamon of Temasek Group dropped by 21% to become Rp.687 billion in Q-1/2015. Bank CMB Niaga as even worse, it booked slump of profit by 43.91% to become Rp.83 billion. Juat like Bank Mandiri, CIMB had to put bigger provision, i.e. Rp.7.37 trillion, an increase of 80.6%. the cause was gross NPL ratio which swelled from 2.57% to 4.07%.

Pressures also befell on Bank International Indonesia (BII) since credit pipelining was still slow. Credit pipelining by BI of Q-1/2015 only grew only grew below 11%. It was almost sure this bank’s performance was not as good as in Q-1 last year.

Somehow fortune was on the side of Bank Negara Indonesia (BNI). In Q-1/2015 BNI’s net profit rose by 17.7% to become Rp.2.82 trillion. Over the same period last year, BNI grew by 15.46% the question was, would this bank be able to maintain good performance in the following quarters?

Bad performance of the abovementioned banks showed that national economic slowdown had its serious effect on banks. The adverse condition did not only smash the banking sector but also the financing sector. Low sales of heavy equipments in 2014 last had suppressed performance of security exchange agents. As example was PT Verena Multi Finance Tbk. whose credit extention slumped by 20%.

Through 2014 last, verena only extended financing to the amount of Rp.1.58% trillion. The Presidential election held last year was mentioned as one of the factors that suppressed company’s performance. Besides, low demand for new cars forced automotive dealers to offers discount. All in all market of used cars turned just as quiet.

On the other hand implementation of the Minerba Law and low commodity prices downsized demand for heavy equipments, while purchasing power of the people living near mining sites also dropped. Company’s net profit also slumped by 30% (y o y) to become Rp.24.1 billion while outstanding expenses also shrunk by 2.7% to become Rp.2.59 trillion.

The decision not to divide dividend had been approved by shareholders at the meeting. Last year GLOB reaped income of Rp.4.04 trillion, up by 4% against same period the year before while their net profit shrunk by 20% to become Rp.92.12 billion. The last time GLOB divided their dividend was in 2013 which was of 2012 at the value of Rp.51 per share.

Being aware of the tight liquidity today, the company had decided not to expand business or open phones new outlets. The company predicted sales of cellular phones would be flat this year. Description of Rupiah had cause developers to postpone opening of new malls and yet malls were opportunity for GLOB to open new outlets.

Even if there were opening of new malls the locations was unstrategic so they were unprospective. Low cellular phone market was indicated by GLOB who service centers like service centers of Blackberry and Nokia. Closing of the service centers were compensated by opening of 10 new outlets last year.

Limited company expansion discourage the Management from setting higher targets this year; the income target was set at 5% to 9%. Last year, realized income was Rp.4.04 trillion. Growth assumption this year considered also the trend of feature phone users migrating to smart phones and tablet.

The cement industry was affected by economic slowdown as indicated by sales of cement in Q-1/2015 which inched down by 3.3% against same period of 2014. The culprit was Government infra structure projects that never started, among others due to heavy rainfall.

With reference to data to the Indonesian Cement Association (ASI), sales of cement in Q-1/2015 was only 13.6 million tons. This figure went down against same period of 2013 amounting to 14.07 million tons. Sales downturn was due to low purchase of cement due to suspended Government’s infra structure or property projects.

Sales of cement was also low due to people’s low purchasing power due to weakening global economy with chain effect on domestic economy; moreover the Government had just increased price of Premium oil by Rp.500 per liter to be followed by increased food price.

Cement producers projects that increase of cement sales would only be in May-June next in like with the execution of Government’s infra structure projects. One of the national cement producers, PT Semen Indonesia, expressed the game grievances.

Through q/2015 there had been downturn in cement sales when SMGR sold their cement at the domestic market amounting to 6.04 million tons. This figure dropped by 1.94% against same period the previously year.

Today SMGR were operating 3 cement factories in Indonesia and one cement factory in Vietnam. The cement factory in Gresik had production capacity of 14 million tons/year and the factory in Vietnam was to serve export need and domestic market in Vietnam. Although sales was negative in Q-1/2015, this year end SMGR was optimistic they would increase sales by 4% - 5%.

Downturn of cement sales in Q-1/2015 was felt by PT Sement Baturaja Tbk. (SMBR). In Q-1/2015 sales of SMBR dropped by 1% to become 302.0321 tons. In the same period of last year, sales SMBR was posted at 304,815 tons. By this year end, SMBR sets sales target to increase to 1.75 tons, an increase of 38% against sales of last year at 1.26 million tons.

For information, SMBR ran 3 factories in Indonesia. The first one was in Palembang with capacity of 350,000 tons/years, the second one in Baturaja with capacity of 1.2 million – 1.3 million tons per year. The third one was in Panjang with capacity of 350,000 tons/year.

In terms of consumption, the consumption by the private sector tend to drop. In Q-1 of this year, Government budget absorption was around 18% or below the proportion which was 25%. It seemed reasonable that economic growth in Q-1 year was projected at only 4.9% - 5.0%.

Ironically, the government was optimistic realization of Government expenditure this year end would reach 90%, because by May 2015 budget absorption would be maximized. The reason was that the Budget form of the Ministries were already filled in. A rosy promise still to be proven because the public had often heard it.

According to the Budgeting officials, budget absorption of Q-1/2015 was slightly suspended due to Budget revision, but the Ministry of Finance had coordinated with all ministries and predictably absorption would reach its climax in May-June because most project forms would have been completed.

The only thing was, although DIPA form had been completed, the budge absorption itself depended on the execution by each respective Ministries, and absorption must be cautiously done. Weather budget absorption could reach 90% or 100% depended on Government’s scenario. The most important thing was quality, not absorption for its own sake.

In this case it was necessary to reform on the spending side, i.e. for infra structure development focused on multi-years, so there should be no rush as the cost of quality downgrading. With a little time left, the Government could make administrative reformation or ask for house’s permit.

Admittedly many DIPA forms in ministries were not verified which caused slow budget absorption, especially for projects based on Tender; therefore betterment of administration was indispensable.

At the macro level, today stakeholders and analyst were anxious to see Government’s monetary and fiscal policy not being synchronous. Lately, BI tend to adopt tight monetary policy while the Ministry of Finance tend to run expansive fiscal policy.

BI’s tight monetary policy had been in effect since 2013 last, and was still going on today. As known, government’s aggressiveness to jack up capital market might expand deficit in current transaction, i.e. 3% against GDP. Inflation might soar up due to imported inflation amidst Rupiah depreciation.

Attitude of the banking sector seemed to follow BI’s stance who seemed to persist to run tight money policy. Evidently BI rate remained to stay at 7.5% and the ceiling of Loan-to-deposit ratio (LDR) was still 92% and such would mean obstacle for the Government in building infra structure.

The Government’s passion to boost investment to fuel economic development must be balanced by BI’s policy to relax their monetary policy, hence there would be synchronous effort to spur on development while maintaining economic stability.

When the banking sector had to cope with uncertainties, it was about time for BI to stand on their side by relaxing monetary policy, for example by allowing banks to use the SUN state promissory notes, it would step up their credit-giving capacity.

Apparently it was not advisable for BI to continue with their tight money policy. BI must relax their monetary policy to harmonize policies through expensive fiscal strategy so banks’ performance could be jack up. (SS)

Business New - May 6, 2015

No comments: