TO EVALUATE CREDIT IN FOREIGN CURRENCY

In a restful global economic climate, credit pipelining in foreign currency especially USD was never any serious problem. However, when economic crisis swept over the world which stagnated flow of USD, traffic flow of foreign currency was just as jammed.

The effect of global crisis was starting to be visible in the performance of Quarter II – 2012 in the banking sector at home. Flow of foreign currency was not as smooth as it used to be. This was the impact of bank’s policy who were being more selective about applicant debtors; banks were also reserving more foreign currency to safeguard their liquidity.

To illustrate: Bank Mandiri, who by June of 2012 last booked increasing forex credit by 8% to become Rp 43 trillion. Over the same period the previous year forex credit grew by 10%. The management of Bank Mandiri deliberately put brakes on giving forex credit due to restricted liquidity of forex. Until June 2012, demand for third party fund of forex only grew by 8.1% to become Rp 59 trillion.

Downturn of foreign currency credit was in parallel with pipelining of corporate credit. Over the same period, this type of credit only grew by 23.9%. Predictably the reduced foreign exchange credit was only applied on credit which were not export oriented. Meanwhile credit for export remained to be given as long as the export commodity was exported and debtor received their income in USD.

It was reported that having pocketed loan from the Standard Chartered Bank Singapore amounting to USD 250 million, Bank Mandiri was again ready to pump out forex credit above 10% till end of 2012. Moreover if obtained loan could reached USD 450 million, the forex credit could grow even higher.

Bank Mandiri’s sister company, Bank BNI, also posted downturn in forex credit. While it grew by 15% in quarter II, now it only posted 13% growth. Downturn of forex credit was mainly happening in the oil-gas sector. This was related to price of oil-gas which dropped due to crisis effect in Europe.

Up to July 2012 last, forex credit provided by Bank BNI was posted at Rp 179 billion, up by 17% against previous period of Rp 152 billion. The bank that bore the logo of 46 predicted that pipelining of forex credit would be more stable provided that the crisis turbulence in America and Europe had subsided.

What was done by the two BUMN was the right strategy. For the sake of managing cases of non performing loans, companies must be selective in channeling forex credit. For example, only companies whose income was in USD like vendors and oil-gas producers. Hence the loss potential from forex loss could be avoided.

Banks were not supposed to force themselves to pipeline forex credit to debtors who sold their products in domestic market, Considering the possibility of forex loss. If debitor’s products were marketed at home, it was advisable for them to be giveb credit Facilities in Rupiah.

Under certain circumstances, banks could give recommendation or input to debitors who had forex credit to convert them into Rupiah credit. This was done to protect debirors from loss and also to safe banks from the risk of non performing loan.

Previously, to compensate release of new forex credit, Bank BNI jacked up pipelining of credit in Rupiah denomination, BNI planned to increase credit flow to eight industrial sectors, among others: agribusiness, construction, communication, electricity, mining, oil-gas, consumer goods and retail.

Although upper strata banks were putting brakes on forex credit, it did not mean forex liquidity was ignored just like that. To banks, liquidity was the lifeblood of a bank that enlivened bank’s operations which made them ready to face any circumstance.

To strengthen forex liquidity, in Semester I – 2012 Bank BNI had released global bonds worth USD 500 million for a period of 5 year. Furthermore Third Party Fund (DPK) of forex also rose by 21%. This foreign currency liquidity was readied to meet customers need and debitors who might at anytime needed foreign currency for overseas payments.

Either customers or private debitors of State Owned Companies (BUMN) who were partners of BUMN must fulfil their forex obligation, like Pertamina. This company who was being active in oil industry could at anytime have the obligation to pay for their import need of oil to the Singaporean oil market.

Hence the banks which were Pertamina’s partners must be able to fulfill. In order to fulfill, banks must know the payment schedule of Pertamina’s forex payment obligation. If banks had no possession of forex reserves in sufficient quantity, they should obtain forex of the public or other financial institutions, especially who had prepared credit line or market line in USD.

Today as export activities tend to weaken, demand for credit in foreign currency tend to lessen as well. So banks did not have to be persistent in channeling forex credit. It would be better if the available forex liquidity be managed well to anticipate possible future sudden soaring demand.

Banks were advised to avoid seeking for forex fund when forex stock was running out, because it was almost certain that fund owners would demand higher interest. So in times when forex abounds banks should aggressively collect to prepare just in case.       

Business News - August 8, 2012