A fillip for N. Sumatra banks

THE FINANCIAL CRISIS & THE ASIAN HEARTLAND: INDONESIA

The economy of North Sumatra is experiencing wrenching changes – some sectors are surging while others are not. In the first of a two-part series, DERWIN PEREIRA looks at the banking and transport sectors

DESPITE runs on banks in other parts of Indonesia, North Sumatra’s banking sector appears to be doing well.

Statistics from the central bank in Medan indicate local banking assets have swelled by 56 per cent since the crisis began last July.

Total assets were valued at 24.30 trillion rupiah (S$4.9 billion) in May this year, compared to 15.52 trillion rupiah in July last year.

The bulk of these “gains” came partly from export-income earners converting foreign currency into increasingly large sums of rupiah.

Another reason was that more people were stashing away their money in savings accounts and fixed deposits instead of re-investing them in their businesses.

Savings in the 119 banks in the province rose by 55 per cent over the same period last year, and fixed deposits by 85 per cent.

Said noted economist Jhon Ritonga of the state-run University of North Sumatra: “It is logical for many rich Indonesians in North Sumatra and elsewhere to put their money in banks in this crisis.

“Banks are perceived as ‘saviours’ now to make the rich richer.”

Mr Ritonga, who has carried out research on how the economic downturn has affected banks in the province, said the high interest rate of 64 per cent a year was a big incentive for many people to save.

He said many depositors were ethnic Chinese businessmen operating their stores at minimal capacity given the uncertain political climate.

“The recent disturbances in Medan and other parts of the country jolted them.

“Many have decided not to restock their goods and chose instead to keep their savings in the banks to earn more money,” he said.

A Straits Times check with several ethnic Chinese retailers and distributors bore this out.

Mr Susanto of Sinar Electronics in Tebing Tinggi, 90 km from Medan and scene of the worst riots in April this year, said he, like many of his friends, was not taking any more risks with further investments.

“Why buy another 10 brand-new television sets when they could be stolen in another bout of rioting and looting?

“Better to just keep the money in the bank,” he said.

But why not just transfer the funds to a foreign country like some have done?

“Why should I?” he replied. “My life, my business, they are all in Indonesia. It makes no sense to take the money elsewhere. It is better to just lie low and wait until the situation improves.”

Economist Umar Juoro from the Centre for Information and Development Studies, a Jakarta-based think tank, said the surge in bank deposits in various parts of the country was not an accurate indicator of the banks’ “state of health”.

He said the prevailing high interest rates were a sign the banking sector and economy were “still down”.

There was bound to be bad debts that at a national level now stood at 50 per cent.

“The real question is whether they are giving loans. It will be very hard for the banks to find good borrowers who are able to pay such high rates,” he said.

Bank Indonesia’s figures show credit, particularly to smaller firms, has decreased by 15 per cent over the last year in North Sumatra.

In Medan, the fall was almost 20 per cent.

Despite the closure of several banks in the country, analysts said people’s confidence in the banking sector was still strong, given the fact that they were putting their money in the banks.

But they were now being more selective in where they put their money.

In North Sumatra, central-bank officials acknowledged that there had been a capital flight from private-sector banks to the six state-owned banks, such as Exim and Bapindo.

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