Senin, 11/05/2009

Are Banks Traumatic or Paranoid?
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Are Banks Traumatic or Paranoid?

ALTHOUGH PROPERTY DEVELOPERS in Indonesia are still optimistic about the future of the property market amidst the jitters caused by the global economic crisis, at this time they still appear not feeling relieved. The reason is that— as acknowledged by the general chairman of Real Estate Indonesia, Teguh Satria—at this time developers still find it difficult to obtain bank loans including credits for property development projects that are quite in high demand like housing projects. Beside the difficulties in obtaining credits because banks are so strict in selecting developers and projects that they consider to finance, high interests of bank loans are also felt to be so worrying developers in Indonesia. In fact, recently Bank Indonesia cut BI rates to 7.5 percent. Still, credit interest rates remain high. When comparing the current banking condition in the 1998 Asian crisis with the 2008 condition, these days banks should not feel traumatic in channeling credits to the real sector, notably the property sector, considering that the national banking is now in a healthy condition.

Data at Bank Indonesia shows that in 1998 national bank assets were only IDR896 trillion while last year they rose drastically to IDR2,311 trillion. And their non-performing loans (NPL) in 1998 totaled 53 percent while at the end of last year they were only 3.2 percent. Similarly, their capital adequacy ratio (CAR) dropped -15.7 percent, while in 2008 it rose to 16.8 percent. Loan to deposit ratio (LDR) rose to 74.6 percent at the end of 2008 due to a rise in credits to third parties.

In the early months of 2009, the national banking industry still shows good performance, although the government liquidated Bank IFI in April and Bank Century in February. But, banks seemed to put on the breaks in credit provision. Even, on the whole, significant growth in credit channeling is still not visible. In 2008 credit growth could be pushed up to 30 percent, according to banks’ business plans submitted by banks, until the end of this year credit growth is set at 16 percent at the highest.

Also, banks remain reluctant to reduce interest rates for the property sector. It is fair to say that the banks have taken a wrong policy considering that the capital structure of developers at this time differ from the capital structure of developers in the 1998 Asian crisis. If this condition is maintained until the end of this year, it is almost certain that the Indonesian property industry will “stagnate”.

The banks’ move of slowing down credit provision is not only directed to large developers that build megaprojects due to fears of possible bigger credit defaults, but is also directed to to developers of middle and low-scale developers. This is against the fact that the potentials of housing demand in Indonesia that reach 800,000 units per year—while supply is only 200,000 units on average—should not be the reason for banks not to channel credits to the housing sector. In addition, bank interest rates must also be reduced considering that BI rates have been reduced to 7.5 percent.

But why have not bank interest rates been reduced? The answer is clear: Banks are still traumatic with the 2008 Asian crisis. Added with the current global economic crisis, the banking industry now become even more paranoid, without any clear reasons. Indeed, this situation is really harmful to the existence of the real sector, which is the generator of any state’s economy.

While keeping interest rates high, banks surely gain big profits. And banks use them as back-up funds to face possible drastic increase in credit defaults. As matter of fact, the rise in NPL is still at the normal level and accordingly there is no reason for banks to remain “paranoid”. If banks wish to look at things clearly, the logic of minimizing credits is by reducing credit interest rates, which will surely push forward the real sector including the property sector. (Deddy H. Pakpahan)