Banking outlook 2007
Below is an excerpt of my discussion with the director/chief financial officer (CFO) of one of the largest banks in Indonesia.
Q: Central Bank had reduced significantly benchmark rates, how you see 2007?
A: Lending rates would be cut significantly from 14% to 10%-11% next year if Central Bank could cut its benchmark rate to 8.5%. But bear in mind that wouldn't automatically boost the economy.
Q: Why?
A: Well, this year my bank had signed Rp10 trillion of new loans, but disbursement had only reached Rp4 trillion till October. The purchasing power is not recovered yet. Look at the significant drop in retail, consumers, and automotive sector.
Q: But hasn't the bottom been reached and the recovery has been started in the last few months?
A: It's true. But as people expect lower interest rate, they're waiting few more months to take new loans. So, it's a wait & see situation. Besides, we need government to be more aggresive in spending next year.
Q: I think the budget has been quite aggresive in spending, but absorption level is apparently the problem with less than 50% in 10 months?
A: Somehow, government should balance the stick and carrot so the project leaders would be brave enough to move on.
Q: What do you mean?
A: Well, anti-corruption campaign has created psychological effect for project leaders, especially the state-funded ones. It's good, right on track. But you gotta give people more carrots, incentives to take risks.
Q: OK, sector wise, which ones have performed well this year?
A: Agriculture, especially plantations, mining, and project finance performed quite well. We're targeting Rp15 trillion of new loans signed next year with disbursement expectation at Rp10 trillion. I think consumer sector would revive next year, but slowly.
Q: Your concern?
A: Job creation. We have too high unemployment rate. Somehow, government should mediate the conflicting interests between businessmen & workers union. A more friendly environment for business would create not only new jobs but better protection for existing workers.
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Q: Central Bank had reduced significantly benchmark rates, how you see 2007?
A: Lending rates would be cut significantly from 14% to 10%-11% next year if Central Bank could cut its benchmark rate to 8.5%. But bear in mind that wouldn't automatically boost the economy.
Q: Why?
A: Well, this year my bank had signed Rp10 trillion of new loans, but disbursement had only reached Rp4 trillion till October. The purchasing power is not recovered yet. Look at the significant drop in retail, consumers, and automotive sector.
Q: But hasn't the bottom been reached and the recovery has been started in the last few months?
A: It's true. But as people expect lower interest rate, they're waiting few more months to take new loans. So, it's a wait & see situation. Besides, we need government to be more aggresive in spending next year.
Q: I think the budget has been quite aggresive in spending, but absorption level is apparently the problem with less than 50% in 10 months?
A: Somehow, government should balance the stick and carrot so the project leaders would be brave enough to move on.
Q: What do you mean?
A: Well, anti-corruption campaign has created psychological effect for project leaders, especially the state-funded ones. It's good, right on track. But you gotta give people more carrots, incentives to take risks.
Q: OK, sector wise, which ones have performed well this year?
A: Agriculture, especially plantations, mining, and project finance performed quite well. We're targeting Rp15 trillion of new loans signed next year with disbursement expectation at Rp10 trillion. I think consumer sector would revive next year, but slowly.
Q: Your concern?
A: Job creation. We have too high unemployment rate. Somehow, government should mediate the conflicting interests between businessmen & workers union. A more friendly environment for business would create not only new jobs but better protection for existing workers.
Labels: Automotive
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posted by yosef at 1:00 PM
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