A global survey has placed five Indonesian lenders among the world's top 500 banking brands - but the country's central bank says Indonesian institutions are still the most inefficient and wasteful in Southeast Asia. The report is from the consultants, Brand Finance, and says the growth of Islamic finance and increased lending to small and medium sized enterprises in rural areas are the key factors for Indonesia's success so far. (source)
Presenter: Girish Sawlani
Speakers: Ahmad Erani Yustika, executive director, Institute for Development of Economics and Finance (INDEF), Jakarta; Adi Tahrir, member of parliament and former chairman, Indonesian Chamber of Commerce and Industry
- Listen: Windows Media
Several Asian giants also made the cut, led by the Industrial and Commercial Bank of China.
But among the top 500 are five Indonesian institutions, consisting of Bank Rakyat Indonesia, Bank Mandiri, Bank Central, Bank Negara Indonesia and Bank Danamon.
And that is a pleasing sight for Ahmad Erani Yustika, who is the executive director of the Jakarta based Institute for Development of Economics and Finance (INDEF).
YUTIKA: I'm very happy with this news that we have five banks included in the top 500 ranked bank brands in the world. We have many opportunities for Indonesian banking to become the biggest banking sector in the world. We have so many prospective customers and we also have a big private sector and also state owned enterprises. That is the source for the banks to get money and also to give the credit or borrowing for the corporate sector.
SAWLANI: According to the Brand Finance survey, Indonesia's banking sector is growing because the industry has continued to strengthen and consolidate its investments. It also says there is more access to loans for micro, small and medium sized enterprises.
Adi Tahrir is a member of parliament and former chairman of the Indonesian Chamber of Commerce and Industry. He says efforts to tackle corruption have also helped instil confidence in the sector.
TAHRIR: The anti corruption movement is very strong in Indonesia so people are now more careful. We can now be more professional in our field, especially in the bank, they are more prudent. But actually for the rural area, we need to be more flexible because the capacity of the rural people is not of an international standard.
SAWLANI: But the survey also finds the country's banking sector has been boosted by growth in Islamic, or sharia finance.
That said, Indonesia remains a minor player on the global stage and Adi Tahrir says there is significant potential for growth.
TAHRIR: Traditionally, we use general banking. Our people, they are still not used to it so they still wonder what is this sharia. Of course it's attractive because it's according to the Muslim law, Muslim regulation, but some people still don't understand it very much. So we need to socialise more about the system of sharia.
SAWLANI: It's not all good, though. The country's central bank says Indonesian lenders are among the most inefficient and wasteful in the Southeast Asian region. Bank Indonesia's deputy governor, Muliaman Hadad, says a number of efficiency indicators show the country lags far behind its ASEAN competitors.
One example is the net interest rate difference.
That's the difference between the interest you get when you save money as opposed to the interest you pay when you borrow.
In Indonesia, the difference stands at 5.8, while rates in Singapore, Malaysia, Thailand and the Philippines range from just 2.3 to 4.5 per cent, which is better for customers.
INDEF executive director, Ahmad Erani Yustika, agrees with the central bank's assessment.
YUSTIKA: Inefficiency in the banking operational system in Indonesia is quite high because the BOPO, the comparison between expenses and operational income in Indonesia, is nearly 98 per cent, which is very high. That's why it's very difficult for the banking sector in Indonesia to decrease interest rates.
SAWLANI: But interest rates at Bank Indonesia are similar to those in the commercial sector. Mr Yustika says with high inflation rates, the central bank faces more challenging dilemmas than private institutions.
YUSTIKA: They get the big task to stabilise inflation mostly and also the rupiah. With the high inflation in Indonesia, some of the source of inflation comes from the non monetary sources, for example, food and oil. It is difficult for the central bank to manage interest rates. But on the other side, commercial banking must support the central bank, in the sense that they must decrease the credit interest.
SAWLANI: There are calls for banks to diversify and focus less on capital cities to reduce their overall inefficiency.
So as the calls for interest rate cuts grow, banks are also being urged to increase investment in rural areas to boost the agriculture sector.
Source : http://www.radioaustralia.net.au/asiapac/stories/201102/s3132416.htm - Feb 7, 2011
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