Urip Hudiono, The Jakarta Post, Jakarta
On the surface, Indonesia's banking sector appears to be on the right track, with first-quarter results in lendings, assets and profitability all having improved from last year.
Yet a closer look at the figures reveals several troubling facts that could offset its achievement. The most important of these is the still significant amount of undisbursed loans and funds placed in central bank bills.
This only adds to the widely criticized practice of lenders placing their excess funds in money market instruments. According to data from Bank Indonesia, as of March undisbursed loans in the domestic banking industry amounted to Rp 167.4 trillion (US$18.6 billion).
Although this is down from the beginning of the year, it is about the same level as December last year, and still represents a 15 percent rise from the first three months of 2006.
Undisbursed loans account for 20 percent of the industry's total outstanding credit, only a slight improvement from 21 percent last year.
Banks also have continued to place their funds from savings and deposits -- which have grown 15 percent to Rp 1,291.4 trillion -- in central bank bills, which have increased to Rp 211.2 trillion.
Another Rp 267.9 trillion has been placed in government bonds.
The issue of undisbursed loans is again in the spotlight, with Finance Minister Sri Mulyani Indrawati questioning why only Rp 43 billion of Rp 25.6 trillion in loans recently committed to the agricultural sector have been disbursed.
State Minister for Cooperatives and Small and Medium Enterprises Suryadharma Ali, during a recent banking seminar, pointed to the complicated lending procedures and requirements, which he said resulting in few committed loans to small businesses being realized.
Banking industry analyst Djoko Retnadi said undisbursed loans have, since the 1997-1998 financial crisis, been a problem for the sector, consistently accounting for more than 20 percent of the industry's total committed loans.
""The situation may, however, improve as businesses and manufacturers are now more careful in taking up loans, in line with the public's purchasing power and actual demand (for their products).""
Banks themselves have said lending growth depends on demand from the real sector, and that the slow disbursement of loans was a normal first-quarter trend.
Most of the first-quarter bank lendings were committed as working capital loans, at Rp 416.5 trillion, with consumer loans at Rp 231.2 trillion and Rp 152.6 trillion of investment loans.
Bank Mandiri, Bank Central Asia (BCA), Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI), the country's top banks, all reported solid first-quarter results.
Overall, the industry reported fewer non-performing loans, and higher loan-to-deposit ratios, net interest margins, capital adequacy ratios and return on assets.
