M Fajar Marta, Jakarta – The domination of foreign interests in the domestic banking industry continues to grow. As of March, banks owned by foreign interests were in control of as much as 42.33 per cent of the domestic banking industry meaning it has now eclipsed the domination by state owned banks.
Foreign domination is not only in terms of the control of assets but also in the accumulation of public funds. As of March, foreign owned banks controlled 43.38 per cent of third party funds totaling as much as 961.07 trillion rupiah. This is already greater than third party assets held by state owned banks amounting to 37.94 per cent.
”Up until now banks owned by foreigners have yet to show an especially good performance. There are even those who’s performance is less than state owned banks or banks which are completely owned locally”, said the director of the Institute for the Development of Economics and Finance (Indef), Iman Sugema, in Jakarta on Monday June 27.
Banks categorised as being owned by foreign interests cover foreign banks, mixed ownerships and private domestic banks where the majority of shares are owned by foreign interests such as BCA, Bank Danamon and Bank Niaga. According to the InfoBank Research Bureau, this has now reached 40 banks from a total of 132.
According to Sugema, the poor performance of banks owned by foreign interests can be seen from their financial performance, the lack of product innovation and a mediocre quality of service. “Banks owned by foreigners also mostly tend to be expanding into consumer credit. While what Indonesia actually needs are banks which are willing to provide credit for the real sector where there is little activity at the moment”, he said.
Throughout 2004, Bank Danamon for example contributed credit to consumers amounting to 4.12 trillion rupiah, far more compared to credit for companies and small- and medium-sized business for working capital and investment.
According to Sugema, as a result of the role played by foreign owned banks, consumer credit is now becoming a nation banking trend. As of March, consumer credit in the banking industry had increased by 54.25 per cent compared with the same period last year. “Foreign banks usually have a strong bargaining position in relation to BI (Bank Indonesia) and the government is still warning [us about] the high dependency of Indonesia on foreign investment”, said Sugema.
The domination of foreign ownership has also caused a flow of foreign bankers into management positions in the domestic banking industry. Not just at the highest levels but also in middle-management levels.
The secretary of the Bank Permata company, Imam Teguh Saptono, explained that banks owned by foreigners have a variety of orientations. There are those that are orientated towards investment as well as those who actually have a commitment to carry out an intermediary function.
Restrictions needed
Saptono acknowledged that the foreign banks which are popular at the moment are indeed those who are mostly contributing to consumer credit, but there are still foreign banks which focus on corporate financing. “So, not all foreign banks focus on retail and consumption”, said Saptono.
A member of the People’s Representative Assembly (DPR) Commission XI, Dradjad Wibowo, says that this foreign domination must be reduced by restricting ownership. “The maximum ownership limit of a bank by a single party should be 30 per cent. Especially state owned banks, the government [must be] able to own more than 50 per cent”, he said.
The commissioner of Bank Rakyat Indonesia, Krisna Wijaya, says that foreign domination was actually created through market mechanisms and is a reflection of pubic trust. “In national terms, it is reasonable for us to worry because [Indonesian’s] are no longer the masters of their own country”, he said.
Wijaya says that as a consequence of foreign domination, many domestic economic interests could be disrupted. “So, the owners of domestic banks must reflect upon why public trust has declined”, he said.
On one occasion, Bank Indonesia governor Burhanuddin Abdullah told the DPR that foreign ownership of domestic banks cannot be prevented at the moment. BI also cannot restrict the activities of the domestic private banking sector owned foreigners bearing in mind they operated as legal entities in Indonesia.
[Translated by James Balowski.]
