Domestic banks in Indonesia recorded an increase of 47.7% in their profit during 2009 on the back of high operating revenue.
According to the figures released by the Bank of Indonesia, domestic banks profit increased 47.7% in 2009 to reach the level of 45.2 Trillion although their lending rose by mere 10%. Profit of state-owned banks rose from Rp 13.2 Trillion in 2008 to Rp 18.1 Trillion in 2009, an increase of 37.2%, as reported by JakartaGlobe
Profit of domestic banks was primarily increased on high operating revenue that soared by 13.7% to Rp 298.2 Trillion.
Business leaders have claimed that these results clearly demonstrate the banks reluctance to lend to businesses during the period of crisis. These banks preferred to generate profits by maintaining high lending margins.
The operating profit was further supported by rising value of commercial profit, interest revenue, gains from foreign exchange derivatives or transactions, dividend and other posts that had a share of 21%.
Moreover, the Bank of Indonesia believes that lending will grow by nearly 20% in 2010.
Considering the potential of Indonesian banking sector, Indian banks (looking to make their presence via acquisition) have run into valuation wall. Two public sector banks – Union Bank of India and State Bank of India (SBI) - are planning to take acquisition of banks in Indonesia. Although Union Bank of India is currently negotiating with 2-3 Indonesian banks, State Bank of India (SBI) had planned to acquire a bank in 2009 but dropped its plan due to high valuation.
Bank of Indonesia is expected to introduce policy guidelines based on disincentives and incentives principles. It will come up with a set of policy improvement initiatives and will augment banking resilience by improving the existing regulations, strengthening supervision practices and establishing a competitive banking industry.
Moreover, Bank of Indonesia will start the benchmarking of funds cost, risk premium, overhead cost and profit margins based on the market friendliness principle. This initiative will help banks to become more efficient in judging their credit rates.
According to a Research Analyst at RNCOS
, “The Indonesian banking industry has emerged as an attractive market since it is witnessing strong growth. Government efforts point to the bright future of the industry. New regulations will result in more efficient banks and high intermediation function that will attract global players to invest in the Indonesian market.”
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