State banks say debt relief package could hurt bottom line – Business
Riska Rahman and Adrian Wail Akhlas (The Jakarta Post)
Tue 5 May 2020
The government’s planned relief package for borrowers affected by COVID-19 will hurt the liquidity of public banks if they do not receive a new source of funding, which could affect income and dividend payments, said a bank representative.
Sunarso, chairman of the state banks association (Himbara), said the loan repayment easings, which would take the form of deferrals and interest rate cuts, would have a negative effect on banks’ liquidity.
“Delayed principal and interest payments are tightening our liquidity,” Sunarso, who is also chairman and CEO of Bank Rakyat Indonesia (BRI), told a virtual hearing. April 30 with House of Representatives Committee VI overseeing public enterprises (EPs), commerce, industry and investment.
The Financial Services Authority (OJK) issued a regulation on March 19 requiring banks to restructure loans to ease financial hardship for borrowers facing the COVID-19 crisis. The OJK did not specify exactly what loan restructuring programs should be offered by banks, but most borrowers want repayment deferrals.
The government also announced that it would subsidize and ease loan interest payments for micro, small and medium-sized enterprises (MSMEs) to help them stay afloat during the pandemic.
The grants will cover interest payments ranging from 2 to 6 percent for up to six months for millions of MSME borrowers. The government will also introduce working capital loans for MSMEs, President Joko “Jokowi” Widodo said April 29.
Sunarso warned that the loan repayment flexibilities could affect state banks’ revenues and profits as they would receive less interest income. This, in turn, would affect banks’ dividend payments in the future, he added.
Himbara members – BRI, Bank Negara Indonesia (BNI), Bank Mandiri and Bank Tabungan Negara (BTN) – recorded double-digit growth in loans and deposits during the first quarter of this year. Loans and third-party funds of the four state banks increased by 11.03% and 10.23% respectively during the three-month period, although their combined assets only increased by 7.09%. .
Sunarso declined to go into detail on the extent of the impact on bank liquidity. He said it was a “sensitive topic that could affect the stock price movement.”
To help alleviate the expected liquidity problem, he asked government agencies and public enterprises (EPs) to place and keep their money in public banks.
“We want government institutions and public enterprises to withdraw their funds for operational purposes only,” he said.
Finance Minister Sri Mulyani Indrawati said a similar step was taken by the government to ease liquidity problems during the 2008-2009 global financial crisis.
“The government is ready to help the Himbara banks to reduce their pressure on liquidity by placing funds there with prudent measures so that we are not overburdened,” she said in a separate hearing with the House. Commission XI overseeing financial affairs on April 30.
Bank Permata economist Josua Pardede said the move could bring temporary relief to state-owned banks.
“The funds could be a short-term lifeline for liquidity for Himbara banks as they restructure more MSME and even large corporate loans during this pandemic,” he said. Jakarta Post Monday.
Despite the liquidity challenge, Josua believed that state banks could maintain their liquidity and cash flow at safe levels because the banks had sufficient capital and broad access to funding.
“Instead, banks with smaller capital – in the BUKU I and BUKU II category – should be more concerned about their liquidity as they will be in a tighter crisis than large banks such as [those of] Himbara,” he said.