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Jakarta Post

State banks say debt relief program could harm bottom line

  • Riska Rahman and Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Tue, May 5, 2020   /   03:59 pm
State banks say debt relief program could harm bottom line The headquarters of state-owned Bank Mandiri on Jl. Gatot Subroto, Jakarta. (./.)

The government’s planned relief program for borrowers affected by COVID-19 will hurt the liquidity of state-owned banks if they are not given a new source of funding, potentially affecting revenue and dividend payments, a bank representative has said.

Sunarso, chairman of the association of state-owned banks (Himbara), said that the loan repayment relaxations, which would be in the form of deferrals and interest rate cuts, would have a negative on the banks’ liquidity.

“Delays in principal and interest payments tighten our liquidity,” said Sunarso, who is also the president director of Bank Rakyat Indonesia (BRI), during a virtual hearing on April 30 with House of Representatives Commission VI overseeing state-owned enterprises (SOEs), trade, industry and investment.

The Financial Services Authority (OJK) issued a regulation on March 19 requiring banks to restructure loans to ease the financial difficulties of borrowers facing the COVID-19 crisis. The OJK did not specify exactly what loan restructuring programs had to be offered by banks, but most borrowers want repayment deferrals.

The government has also announced it will subsidize and ease loan interest payments for micro, small and medium enterprises (MSMEs) to help them stay afloat during the pandemic.

The subsidies will cover interest payments ranging from 2 to 6 percent for up to six months for millions of borrowers in the MSME category. The government will also introduce working capital credits for MSMEs, President Joko “Jokowi” Widodo said on April 29.

Sunarso warned that the loan repayment relaxations could affect state banks' revenue and profit as they would receive less interest income. This, in turn, would affect the banks’ dividend payments in the future, he added.

The members of Himbara – BRI, Bank Negara Indonesia (BNI), Bank Mandiri and Bank Tabungan Negara (BTN) – enjoyed double digit growth in their loans and deposits during the first quarter of this year. The lending and third-party funds of the four state banks grew 11.03 percent and 10.23 percent respectively during the three-month period, although their combined assets rose by only 7.09 percent.

Sunarso declined to go into detail about how big the impact would be on the banks' liquidity. He said it was a “sensitive matter that could affect share price movement”.

To help alleviate the expected liquidity problem, he asked government agencies and state owned enterprises (SOEs) to put and keep their money in state-owned banks.

 “We want government institutions and SOEs to withdraw their funds for operational purposes only,” he said.

Finance Minister Sri Mulyani Indrawati said a similar move had been made by the government to ease liquidity issues during the 2008-2009 global financial crisis.

“The government is ready to help Himbara banks reduce their liquidity pressure by placing funds in them with careful measures so we won’t be burdened,” she said in a separate hearing with House Commission XI overseeing financial affairs on April 30.

Bank Permata economist Josua Pardede said the move could provide temporary relief for state-owned banks.

“The funds could be a short-term lifeline for Himbara banks’ liquidity, as they will be restructuring more loans from MSMEs and even big corporations during this pandemic,” he told The Jakarta Post on Monday.

Despite the liquidity challenge, Josua believed that state banks could maintain their liquidity and cash flow at safe levels as the banks had sufficient capital and broad access to funding.

“Instead, banks with smaller capital – in the BUKU I and BUKU II category – should be more concerned about their liquidity as they will be in a tighter crunch than bigger banks such as [those of] Himbara,” he said.