Indonesia to allow more private stakes in banks

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MandiriIndonesia may consider cutting public stakes in banks and imposing lending quotas in an effort to channel more credit to industry, as policy makers prepare reform proposals for incoming President Joko Widodo, Bloomberg reported.

Financial regulators and economic officials from the current administration will meet next week to forge a set of plans to address persistently high domestic borrowing costs and insufficient lending going to manufacturers, according to Edi Prio Pambudi, an assistant deputy minister at the Coordinating Ministry for Economic Affairs. He said quotas and privatising state-owned banks are among the scenarios under discussion.

“Banking in Indonesia is still dominated by public banking not private banking,” Pambudi said. “The cost of financing is very expensive” and the country needs to reallocate the investment focus from primary commodities into manufacturing, he said.

At stake is boosting growth to the 7-per cent target set by Jokowi, as the president-elect is known, a pace Southeast Asia’s largest economy hasn’t seen since the years before the 1997-98 Asian financial crisis. The incoming leader, running on a platform of concern for common people, won last month’s election, giving him a mandate to govern for five years from October.

Indonesian structural reform requires a “very, very brave” leader, Pambudi said.

The country needs to ensure the flow of money will go into more productive sectors, as currently domestic banks prefer to allocate funds to agriculture and low-productive industries, he said. State-owned banks are under pressure to show profit to the government, and high interest rates at local lenders mean companies seek financing outside Indonesia, leading to rising external debt, he said.

Asked if privatising public banks and imposing lending quotas are among the scenarios being considered, Pambudi said yes, without specifying how these would be implemented.

PT Bank Mandiri, Indonesia’s biggest lender by assets, is 60 per cent-owned by the government. Others that are state-owned include PT Bank Rakyat Indonesia, the second-biggest bank, PT Bank Negara Indonesia and PT Bank Tabungan Negara.

Reducing the government’s stakes in banks won’t be enough unless it also prods bigger lenders to buy smaller ones, said Arief Wana, a director at PT Ashmore Asset Management Indonesia, which oversees the equivalent of about $423 million of Indonesian assets.

“Consolidating state-owned banks will give a positive impact to the economy as it will boost lending growth, make our banks competitive, lending rates will decline,” Wana said. “It should boost purchasing power and give opportunities for local companies to get cheaper loans in the domestic market rather than go overseas or issue dollar bonds.”

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Reading Time: 2 minutes

Indonesia may consider cutting public stakes in banks and imposing lending quotas in an effort to channel more credit to industry, as policy makers prepare reform proposals for incoming President Joko Widodo, Bloomberg reported.

Reading Time: 2 minutes

MandiriIndonesia may consider cutting public stakes in banks and imposing lending quotas in an effort to channel more credit to industry, as policy makers prepare reform proposals for incoming President Joko Widodo, Bloomberg reported.

Financial regulators and economic officials from the current administration will meet next week to forge a set of plans to address persistently high domestic borrowing costs and insufficient lending going to manufacturers, according to Edi Prio Pambudi, an assistant deputy minister at the Coordinating Ministry for Economic Affairs. He said quotas and privatising state-owned banks are among the scenarios under discussion.

“Banking in Indonesia is still dominated by public banking not private banking,” Pambudi said. “The cost of financing is very expensive” and the country needs to reallocate the investment focus from primary commodities into manufacturing, he said.

At stake is boosting growth to the 7-per cent target set by Jokowi, as the president-elect is known, a pace Southeast Asia’s largest economy hasn’t seen since the years before the 1997-98 Asian financial crisis. The incoming leader, running on a platform of concern for common people, won last month’s election, giving him a mandate to govern for five years from October.

Indonesian structural reform requires a “very, very brave” leader, Pambudi said.

The country needs to ensure the flow of money will go into more productive sectors, as currently domestic banks prefer to allocate funds to agriculture and low-productive industries, he said. State-owned banks are under pressure to show profit to the government, and high interest rates at local lenders mean companies seek financing outside Indonesia, leading to rising external debt, he said.

Asked if privatising public banks and imposing lending quotas are among the scenarios being considered, Pambudi said yes, without specifying how these would be implemented.

PT Bank Mandiri, Indonesia’s biggest lender by assets, is 60 per cent-owned by the government. Others that are state-owned include PT Bank Rakyat Indonesia, the second-biggest bank, PT Bank Negara Indonesia and PT Bank Tabungan Negara.

Reducing the government’s stakes in banks won’t be enough unless it also prods bigger lenders to buy smaller ones, said Arief Wana, a director at PT Ashmore Asset Management Indonesia, which oversees the equivalent of about $423 million of Indonesian assets.

“Consolidating state-owned banks will give a positive impact to the economy as it will boost lending growth, make our banks competitive, lending rates will decline,” Wana said. “It should boost purchasing power and give opportunities for local companies to get cheaper loans in the domestic market rather than go overseas or issue dollar bonds.”

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