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BPDs lack access to new capital
Access to new capital and corporate governance continue to be the biggest challenges that Indonesiaâs regional banks (BPDs) face in supporting their rapid growth in loans, according to Fitch Ratings in its latest report
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ccess to new capital and corporate governance continue to be the biggest challenges that Indonesia's regional banks (BPDs) face in supporting their rapid growth in loans, according to Fitch Ratings in its latest report.
The financial positions of the regional governments in Indonesia, which are the major shareholders of the regional development banks, known as Bank Pembangunan Daerah (BPDs), are considered weak, limiting the capital they can provide to the banks, the rating agency said.
In addition, many of the regional development banks do not have appropriate corporate governance, mainly because of weak internal controls, poor accounting practices and ineffective risk management.
Intervention from regional governments also makes it difficult for the banks' management teams to conduct business prudently. There are 26 BPDs in 31 provinces in Indonesia. Although they have high market shares in their respective regions, their contribution to the overall banking system remains small: about 8 percent of total banking assets as of the end of 2013, the rating agency said.
Fitch's ratings on the banks reflect the potential support they may receive from the central government through the regional governments. The BPDs are important to the central government, which use them to channel funds to pay civil servants and finance government special projects. Their importance will grow as Indonesia's regions contribute a larger share to national revenues, Fitch said.
