The Banks and The Leeches

Bank Indonesia, the central bank, cut further its benchmark rate to 7.25% today. As usual, the decision will be followed with comments and suggestions to have the commercial banks cut their lending rates. Teguh Hidayat, journalist/researcher at yosefardi.com provides better understanding about how Indonesian banks built up huge profits.

BI's benchmark rate for Q1 2009 was 8.25%/annum (average), while in Q1 2008 the average rate was 8%. So, it is a 0.25% gap. How bank responded to the BI benchmark rate when it comes to saving accounts? Well, all of three major banks---BRI, BCA, and Danamon---cut significantly the interest rates.

 

Saving Account (%)	Q1 09	Q1 08	growth (%)
BRI	2.44	2.48	-2
BCA	2.80	2.86	-2
Danamon	2.95	3.32	-11

Ordinary people usually put their money in saving accounts. Wealthier people mainly put in time deposits. They're better off, because banks raised the interest rate for time deposits significantly.

 

Time Deposit (%)	Q1 09	Q1 08	growth (%)
BRI	10.52	7.55	39
BCA	7.22	5.99	21
Danamon	11.82	7.60	56

How about the lending rates? Well, major banks responded differently. BRI cut its interest rate by 6% to 17.26% in Q1 2009, but BCA and Danamon raised the lending rates instead. 

 

Lending rates (%)	Q1 09	Q1 08	growth (%)
BRI	17.26	18.29	-6
BCA	12.38	10.92	13
Danamon	19.53	17.91	9

Look at how big is the gap (spread) between cost of funds and the lending rates. It's around 8-10% (blended rates of savings and time deposits). Say that they put people's saving accounts in government bonds, they could get 8-9% margin. No wonder that most major banks recorded huge net profits in the past few years. Interestingly, five major banks reported stable net profit growth of 17% in 2006, 2007, and 2008. 

 

Profit (Rp billion)	FY 2008	FY 2007	FY 2006	FY 2005
BCA	5776	4489	4242	3597
BRI	5958	4838	4257	3808
Mandiri	5315	4347	2422	1232
BNI	1226	902	1928	1417
Danamon	1530	2116	1325	2003
Sub-Total	19805	16692	14174	12057
Growth (y-o-y)	18%	17%	17%

 

The banks are more than just healthy. With steady growth of 17% per year of net profit, you can't expect more than that. BCA's combined net profit in 2005-2008, for example, is Rp18.1 trillion. Say that the payout ratio is 50%, the shareholders of the bank had received Rp9 trillion in five years. Djarum Group as the owner of 41% shares in BCA might have received Rp3.6 trillion under such calculation.

Meanwhile, the real sector repeatedly complained about the interest rate spread. They believe banks, including the central bank, care only about the balance sheet and gigantic profit for the shareholders, while pay less attention in making banks the real lifeblood of the economy. For now, they're just like leeches. 

This is an archive of yosefardi.com

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