State banks still inefficient, says central bank governor

The Jakarta Post ,  Jakarta   |  Fri, 06/15/2007 9:27 AM  |  Business

The Jakarta Post, Jakarta

The central bank has urged state banks to become more efficient if they want to improve their performances and be more competitive.

""State banks are still inefficient. We are monitoring them every month, and we are unhappy with the level of efficiency they are showing,"" Bank Indonesia Governor Burhanuddin Abdullah was quoted as saying Thursday by Antara.

He was commenting on the government's latest economic policy package, in which it promised to improve the coordination and restructuring of state-owned banks in order to make them more efficient.

Bank Mandiri president director Agus Martowardojo said it was difficult for national banks to improve their efficiency because many of them still faced difficulties in extending loans.

Another reason, he said, was that many companies had now turned to the capital markets to meet their financing needs.

""The banking industry is not the only source of financing today. The public can now borrow from investors through the capital market by issuing corporate bonds,"" he said.

The appreciation of the rupiah to a level of Rp 8,800 against the dollar had also contributed to the fall in the demand for business loans, he said, adding that with the stronger rupiah, many export companies had reduced production as their products were now less competitive on the world market.

Bank Indonesia has voiced concerns about sluggish lending growth even though it has cut its key rate five times this year to 8.5 percent last week.

The banks have been criticized as being too slow in reducing their lending rates in line with the new BI rate, with the major banks saying that lending rates will stay at double-digit levels of between 10 and 14 percent.

Given these new challenges, Agus predicted that share of bank profit generated from interest earnings would decline, adding that this would force the banks to increase fee-based income in order to maintain their profits.

He said that in order to improve efficiency, the banks needed to reduce their non-performing loans (NPLs) so that they would not have to make such large provisions for bad debts.

In addition, he said, further mergers were needed in the banking industry so as to reduce operating costs.

These measures would be in line with the central bank's ""single presence"" policy regulation, which prohibits a single shareholder from controlling more than one bank.

""But it is the government as the majority shareholder, not the management, to do this,"" he said.

The government currently controls five banks -- Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia and Bank Tabungan Negara. -- Ary Hermawan

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