Tuesday, 21st October 2014

Banking dominates Indonesia`s financial services industry

Selasa, 12 Juni 2012 19:09 WIB | 1.916 Views
Jakarta (ANTARA News) - Banking services still dominate Indonesia`s financial services industry, the Chief Executive of the Deposit Insurance Agency (LPS), Firdaus Djaelani has said.

"Total assets in the banking industry reached Rp3,700 trillion at the end of 2011, or about 76.1 percent of total assets in the financial services industry," Firdaus stated here on Tuesday, while speaking during a "fit and proper" test for membership in the new Board of Commissioners of the Financial Service Authority at the House of Representatives.

He said the total assets of non-banking financial services industry reached only Rp1,165 trillion, or around 23.9 percent of the total assets of the financial services industry.

Firdaus noted insurance had so far been the biggest segment of the non-banking services industry, with total assets worth Rp481.5 trillion - about 41.31 percent of the total assets of the industry.

"The dominance of the banking services industry shows the financial services industry in Indonesia has not developed much," he said.

According to Firdaus, a financial services industry that is dominated by banking services is vulnerable to economic upheavals, because banks borrow short and lend long.

He pointed out that the intermediary role played by banks in Indonesia was not satisfactory in light of the low credit-to-GDP ratio, which was still at around 29 percent, compared with 113 percent in Singapore, 121 percent in Malaysia and 105 percent in Thailand.

Speaking about the structure of bank funding, Firdaus said it was still dominated by deposits, with 45.4 percent of funds from third parties, which led to the high cost of funds and prevented regulators from controlling bank credit rates.

In view of that, he urged the government to boost investment in segments other than deposits, such as the capital market or other non-banking financial services.

"That way the composition of bank funding would shift more to giro and savings, whose cost of funds is cheaper," Firdaus explained.

He said an underdeveloped financial services industry was likely to make way for market monopoly, which would create inefficiency within the industry and hurt consumers.

"Industry domination will also make players maintain their status quo by using unethical business practices," he added.

Firdaus said inefficiency in the financial services industry would also make people avoid formal services and prefer the informal ones, such as loan sharks, which could lead to increased poverty.(*)