Indonesia Lagging Behind Other Asean Countries In Banking

Bogor, W Java, June 25 (ANTARA) - The Indonesian banking sector`s performance is improving, but still does not match up to those of other ASEAN member countries such as Singapore, Malaysia, Thailand and even the Philippines, according to the Indonesian central bank. "Even though the sector is experiencing rapid growth, there are only four Indonesian commercial banks in the top 20 in the ASEAN region," Deputy Governor of Bank Indonesia Halim Alamsyah said here on Monday. According to Bank Indonesia`s data, as of December 31, 2011, the top two ASEAN banks are from Singapore, while Malaysian banks occupy the third to fifth positions, followed by two banks from Thailand. Meanwhile, Indonesia`s Bank Mandiri is placed in the ninth spot and BRI in the 11th, while BCA and BNI are ranked 14th and 15th, respectively. Halim noted that Indonesian banks were lagging behind because of low efficiency levels, as seen from their cost to income ratio, which decreased to 76.7 percent on April 2012, but was still much behind those of Malaysia, Thailand and Singapore. Halim said the inefficiencies in the banking sector could be attributed to the high operating costs, especially in labour and goods and services. Based on Bank Indonesia`s data for 2011, the labour costs reached 1.29 percent of total banking assets, while the cost of goods and services reached 0.54 percent. "The banks said the high costs were due to their efforts to penetrate the Indonesia market by opening new branch offices across the country," Halim explained. He said the banks` low efficiency levels led to high interest-rate loans, which resulted in high business financing costs. The high lending rates in Indonesia have discouraged businesses from taking bank loans. After falling sharply during the 1997-98 crisis, the credit to GDP ratio continues to remain low and, by the end of December 2011, it reached 29.9 percent, which was much less than those of the Philippines, Thailand, Malaysia and Singapore. "With such low efficiency among Indonesian banks, other ASEAN banks can compete and dominate the domestic market share in Indonesia," Halim stated. For this reason, the central bank said, a regulation was needed to improve the efficiency and governance of Indonesian banks in order to boost their resilience and competitiveness. Bank Indonesia will soon issue a regulation on the ownership structure of commercial banks in order to improve their corporate governance and for the consolidation of the banking system.