P

lacements by banks in government bonds have further increased in the past four months as banks have slowed loan expansion and seek safe investment instruments, the Finance Ministry reveals.

The report, issued by the directorate general of debt management, shows placements by banks in government bonds rose 5 percent or Rp 13.24 trillion (US$1.10 billion) to Rp 271.99 trillion as of March 12 from Rp 258.75 trillion in December 2008.

According to recently issued central bank data, banks also invested big in short-term central bank certificates (SBIs), which soared 25 percent or Rp 41.99 trillion to Rp 208.51 trillion in January from Rp 166.52 trillion in December

"Local investors, like banks, insurance companies, pension funds, and mutual funds, have increased the proportion of government bonds in their asset portfolio," director general of debt management Rahmat Waluyanto said Friday.

Aside from seeking safe-havens, Rahmat said, investment was also aimed at getting higher proceeds amid a declining trend in the central bank benchmark interest rates.

Fauzi Ichsan, an economist with Standard Chartered Bank Indonesia said there were two reasons why banks put funds into SBIs and government bonds.

"First, banks are considering the high default risk of lending to companies, and looking for safer instruments, those are SBIs and government bonds. And second, companies are putting expansion on hold as demand slows," he said.

Looking ahead, said Fauzi, would depend on the government's channelling of the fiscal stimulus.

"Now the economy depends on fiscal stimulus, not monetary stimulus. If the fiscal stimulus, aimed at infrastructure projects, can generate employment and raise people's purchasing power, companies may start expansion. This will drive banks to channel more loans," he added.

The government has unloaded the infrastructure stimulus worth about Rp 12.2 trillion, which will be implemented starting on March 18.