Indonesia banks warn of liquidity squeeze from govt bond issuance
By Bernadette Christina Munthe and Maikel Jefriando
JAKARTA, Jan 31 (Reuters) - Two of Indonesia's biggest banks
have warned that a government strategy of frontloading bond
issuance and selling more debt to retail investors is draining
cash in Southeast Asia's largest economy and risks undermining
efforts to boost bank lending.
The government has sold more bonds than it targeted at every
auction it has conducted so far this year and retail bond sales
have been double the initial target.
Jahja Setiaatmadja, chief executive of Bank Central Asia,
Indonesia's largest bank by market value, told a banking forum
late on Wednesday that the industry's loan-to-funding ratio
(LFR) "is already at a condition where we can't be expansive" at
93 percent, above Bank Indonesia's (BI) guidance of keeping it
within 80-92 percent.
He said that with LFR at these levels and banks tied to the
funding of infrastructure projects "we are worried that the
availability of liquidity will be drained and now we're facing
competition with the government," Setiaatmadja said.
Setiaatmadja also said assistance by banks in government
bond sales to retail investors this year was in effect
"canibalising" saving deposits and noted the bonds were marketed
with a higher return than term deposits offered by banks.
The government has raised 101.9 trillion rupiah ($7.29
billion) in bond sales this year, excluding a $100 million
private placement and U.S. dollar notes sold late last year for
pre-2019 funding, according to Reuters calculations.
The increase in bond supply has already halted price
appreciation at a time of strong foreign inflows, Trimegah
Securities' economist Fakhrul Fulvian said. The Jakarta-based
brokerage said the government's net bond sales so far in 2019
were the highest since at least 2010.
Suprajarto, chief executive of Indonesia's biggest bank by
assets, Bank Rakyat Indonesia, told Reuters the lender had also
seen competition with the government for savings, but stressed
it had a strategy to bump up savings growth this year.
Luky Alfirman, the finance ministry's head of financing and
risk management, said there was nothing extraordinary in its
2019 bond strategy, noting bond sales were always frontloaded.
Finance Minister Sri Mulyani Indrawati said on Tuesday the
bond strategy would adapt to local market conditions and take
into account U.S. interest rate rises. But she said that should
not deepen competition with the private sector due to a
projection of a smaller budget deficit for the whole year.
The government has forecast a 1.8 percent-of-GDP budget
deficit for 2019, below 2.2 percent last year.
Savings in banks have been growing at a much slower pace
than credit, a trend BI expects to continue this year. BI has
said loan growth would likely stay in a range of 10-12 percent,
while savings growth was seen at 8-10 percent.
Despite BI's 175 basis-point rate hikes last year to halt
capital outflows, loan growth has been accelerating.
BI said in order to protect economic growth it had relaxed
reserve requirement rules and increased the frequency of its
term repo auctions to provide liquidity.
($1 = 14,020.0000 rupiah)
(Reporting by Bernadette Christina Munthe and Maikel Jefriando
Additional reporting by Cindy Silviana
Writing by Gayatri Suroyo
Editing by Ed Davies and Kim Coghill)
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