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ice President Boediono called on regional banks (BPDs) to use their funds to finance development projects instead of investing them in risk-free central bank certificates (SBI) and government bonds (SUN).

Speaking to senior officials of provincial banks in Jakarta on Tuesday, Boediono acknowledged that many provincial banks preferred to invest their funds in SBIs and SUNs rather than channeling them as loans because, apart from yielding good profits, they were relatively risk free.

“Commercial banks can do that, but development banks are different. [They] should focus on financing development needs,” he said at the signing ceremony of the “BPD Joint Commitment as Regional Champions” at the Bank Indonesia offices in Jakarta.

“You can’t call yourself a bank if you only profit from SUNs and SBIs,” he added.

Analysts said many regional banks placed their funds in risk-free SBIs and SUNs to get higher returns.

They were reluctant to finance development projects because they not only provided lower returns but also carried higher risk.

To play a bigger role in the regional economy, Boediono said, regional banks should be able to increase their financing capacity.

“To empower themselves as intermediaries, regional banks need to increase their capital and appoint more skilled personnel,” he added.

BI deputy governor Muliaman Hadad said regional banks had a number of financing alternatives to strengthen their capital structure, such as by issuing bonds or selling shares through an initial public
offering.

“Some BPDs may already meet the requirements to go public,” Muliaman said, citing as an example Bank Jabar Banten, which made its capital market debut earlier this year.

Jabar Banten offered 25 percent of its shares through an IPO earlier in July, collecting Rp 1.45 trillion to expand its credit. The IPO was a success, with the share price soaring 50 percent immediately after the Indonesia Stock Exchange (IDX) debut.

There are 26 regional development banks in the country, with a market share of 8.9 percent, BI Governor Darmin Nasution said at the same event.

Darmin added that the market share of regional development banks had significantly increased in the past five years.

Their third party funds had, for example, reached 9.4 percent of total bank deposits, up from 7.6 percent in December of 2005, he said.

Regional bank loans accounted for 8.5 percent of all bank loans, up from 6.5 percent at the end of 2005. Meanwhile, the number of BPD offices accounted for 10.4 percent of the total, down from 13.4 percent in December 2005.

“So the growth of the role of regional banks is more about substance than quantity,” Darmin said.

The banks on Tuesday signed a joint commitment on a blueprint to act as regional champions in expanding regional economies.

Darmin said the blueprint covered three areas: strong sustainability to strengthen capitalization and create a healthy business environment, strengthening banks’ roles as regional development agents to support the pro-poor, pro-jobs and pro-growth agenda, and increasing banking access for people so financial inclusion could be increased. (est)