T

here are times when having piles of cash can be troublesome.

For major local banks, such a time might have come soon after the government introduced the tax amnesty program, expected to lure in funds kept overseas by individual Indonesians and companies.

Big-sized banks that hold massive liquidity, yet have low credit growth, may be burdened by the repatriated funds under the tax amnesty program, kicked off earlier this month as an effort to plug state budget deficits amid a global economic slowdown and plunging energy prices.

It is feared that the large amount of repatriated funds coming into the banks — which are predicted to reach billions of dollars — might press down further their already-low loan-to-financing ratios (LFRs), previously called the loan-to-deposit ratio (LDR), which measures the proportion between funding and lending in a bank.

A declining LFR in a bank may happen when it holds significant liquidity, yet is unable to boost its channeling of the funds into loans as its clients reduce demand for credit due to a sluggish economy.

A bank is required to pay fines to Bank Indonesia (BI) in the form of a higher minimum reserve requirement (GWM) when its LFR reaches below the lowest threshold of the required range — or surpasses the highest threshold.

Last month, BI revealed there were 34 banks that still had LFRs below the required range as of April. These banks were obliged to pay fines to the central bank.

The LFR in Bank Central Asia (BCA), the country’s biggest private lender, stood at 77.9 percent as of June. It was higher than the 75.7 percent posted in the same period last year, but still lower than BI’s minimum LFR requirement of 80 percent.

On the other hand, BCA’s credit growth stood at 11.5 percent year-on-year (yoy) in the first half of the year, and president director Jahja Setiaatmadja has said the bank might not see its loans grow to 12 percent in 2016 as targeted if there is no significant economic improvement throughout the rest of the year.

He even said the bank had cut its time deposit interest rates drastically from above 7 percent to 5 percent recently in order to release some of its third-party funds, causing its LFR to rise slightly.

“Loans are growing weakly compared to previous years when we still saw 20 percent growth, and yet we also have a surplus of funds,” he said recently.

Along with three state-run banks, BCA has signed a contract with the government to serve as a gateway bank to help repatriate funds from the tax amnesty, triggering the possibility that its LFR may well decline again.

Achmad Baiquni, president director of state-owned Bank Negara Indonesia (BNI), also predicted that the bank’s LFR might decline if a significant amount of repatriated funds started to enter the bank. The bank specifically projects that it may absorb between Rp 50 trillion (US$3.8 billion) and Rp 60 trillion from the repatriated funds.

Despite having extra liquidity and a high loan growth target of 18 percent this year, he said BNI could not directly channel the funds into loans as it would still have to assess growth prospects in the economy.

“We try to maintain our LFR at around 85-90 percent,” Baiquini said.

Bank Mandiri president director Kartika “Tiko” Wirjoatmodjo expressed a similar view that extra incoming liquidity from repatriated funds should be managed well to prevent LFRs from declining sharply. Tiko said this could be done by channeling them to the capital market.

Hoping to help boost loan demand, BI relaxed last month the loan-to-value (LTV) ratio for mortgages for the second time, meaning that customers could pay a lower down payment. At the same time, BI narrowed the LFR related to the GWM to a range of 80 to 92 percent from a range of 78 to 92 percent
previously.

The narrowed LFR means that banks are now required to channel at least 80 percent of their funding pools as loans to the public, as opposed to the earlier rate of 78 percent.

BI Governor Agus Martowardojo acknowledged that incoming repatriated funds could decrease banks’ LFRs during early phases, but still expected that they could be disbursed to the real sector. (mos)