Post-Election Financial Sector
Paul Sutaryono
The 2019 simultaneous elections have ended. In the national recapitulation of the presidential election announced by the General Elections Commission (KPU) on May 21, the Joko Widodo-Ma\'ruf Amin pair took the lead with 55.5 percent of the vote.
Political guarantee will certainly boost the real sector, which then triggers economic growth. What are the challenges and passion of the financial sector? First, the government will get more support from the coalition parties in the House of Representatives. Thus, it is expected that more bills can be passed into law.
In the 2019 National Legislation Program (Prolegnas) there are 55 bills and those related to the financial sector, such as an amendment to Law No. 5/1999 on the prohibition of monopolistic practices and unfair business competition, creative economy bill, a draft bill on the restriction of currency transactions and the state-owned enterprises (BUMN) bill . Unfortunately, the House frequently gives the reason that the government is lazy to attend to discuss the bills. It was implied from the absence of the problem inventory list (DIM) when submitting presidential letters (surpres) to the DPR. Three presidential letters that were not accompanied by DIM are the bill on tobacco, the state civil servants bill, and the bill on customary law (Kompas.com, 8/3/2019).
There are bills that should be rescheduled, namely the Bank Indonesia bill, because banking supervision shifted to the Financial Services Authority (OJK) in December 2013. Also, the bill on cooperatives because the Supreme Court annulled Law No. 17/2012 to return to Law No. 25/1992. Moreover, cooperatives as the pillar of the people\'s economy has not yet materialized. This is the key challenge of the Cooperatives and SMEs Ministry.
BUMN holding company
Second, now BUMNs are being encouraged to be more professional and prominent. There were 143 BUMNs in 2018 with total assets of Rp 8.09 quadrillion, total equity of Rp 2.47 quadrillion, which contributed Rp 422 trillion to the state budget and total profits of Rp 200 trillion (unaudited) in the 2014-2018 period. Therefore, the State Enterprises Ministry formed a holding company to increase the level of efficiency and competitiveness. The establishment of the holding company is aimed at expanding the capacity of Indonesian BUMNs to world-class companies so they can competently compete at least at the regional level.
Now there are holding companies of the state-owned cement companies under PT Semen Indonesia, BUMNs in mining (under PT Inalum), BUMNs in fertilizer production (PT Pupuk Indonesia), BUMNs in oil and gas (PT Pertamina), and BUMN in housing (Perumnas). The latest plan is to establish a holding company for BUMNs in aviation under PT Penas. This holding company will include state-owned airport management company PT Angkasa Pura I, PT Angkasa Pura II, PT Garuda Indonesia, PT Pelita Air Service, and Indonesian Aviation Navigation Service Provider Institute (AirNav Indonesia).
Why will the relatively small PT Penas become a prospective holding company? The government wants to suppress resistance as low as possible among the mighty BUMNs so that future improvement will be smoother. Therefore, there should be a prospective holding company that must be qualified in the sense to be professional, have high integrity and be experienced in a highly integrated business.
Another holding company that is still being processed is a BUMN in financial services that includes Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Negara Indonesia (BNI), Bank Tabungan Negara (BTN), Bahana Pembinaan Usaha Indonesia (BPUI), PT Permodalan National Madani (PNM), PT Investment Management, PT Danareksa Finance, PT Bahana Sekuritas and PT Bahana Artha Ventura. As the first step, BTN immediately acquired 30 percent of PT PNM\'s shares in PT Permodalan Nasional Madani Investment Management (PNMIM). The effort to form a state-owned financial services holding has taken a long time, even though it was initiated five years ago (2014), because each state-owned bank has millions of customers that must be protected.
Therefore, the House should immediately "wake up" to complete the deliberation of the BUMN bill as a legal basis that a has far-reaching vision in establishing a holding company. Moreover, the plan to form a super holding company that is directly under the supervision of the President, is similar to Temasek in Singapore and Khazanah in Malaysia, which is under the prime minister.
The master plan of BUMN Karya, which includes, among others, PT Hutama Karya, PT Waskita Karya, PT Adhi Karya, PT Wijaya Karya, PT Amarta Karya, and PT Istaka Karya, needs to be carefully taken into consideration. Why? Because when the holding company is formed, from the risk management side of the bank as an infrastructure project creditor, it will evaluate BUMN Karya as an entity. This assessment will result in lower credits.
Moreover, banks must consider the maximum lending limit (BMPK). As a result, bank loans to infrastructure projects, such as airports, seaports, toll roads, railroads, irrigation and power stations will be more limited. This is a serious challenge for the State Enterprises Ministry and the Public Works and Housing Ministry.
Cooperation among BUMNs
Third, efforts to build synergy among BUMNs must continue. At present, PT Asuransi Jiwasraya, as the only insurance BUMN, is experiencing a lack of liquidity. To overcome this, Jiwasraya will issue Rp 500 billion in medium term notes (MTN) bonds.
Various alternative solutions were offered, such as the disbursement of state investment (PMN), bond recap to cover capital as had been given to 28 public banks in the 1998-1999 period or inviting foreign investors (Paul Sutaryono, Kontan, 14/11/2018).
On the contrary, the government wants to invite BUMNs, namely BTN, PT Pegadaian, PT Kereta Api Indonesia (KAI), and PT Telkom, to embrace Jiwasraya. Certainly, it is an effort to build a beautiful synergy among BUMNs. Therefore, it is reasonable to include BRI, Bank Mandiri, and BNI considering that they have more powerful capital.
BRI’s net profit increased from Rp 29.04 trillion as of December 2017 to Rp 32.40 trillion as of December 2018 (up 11.60 percent). Bank Mandiri followed suit with a net profit from Rp 20.60 trillion to Rp 25.00 trillion (21.40 percent) in the corresponding period and BNI from Rp 13.61 trillion to Rp 15.01 trillion (10.30 percent). Unbelievable!
Thus, Jiwasraya immediately rises again to become a champion BUMN. Remember that the insurance industry is still less enthusiastic than the banking industry. This is ironic because Indonesia has a population of 260 million, which is a gigantic customer base. This is the true challenge of the government rather than hastily forming the holding company of insurance firms.
Banking credits
Fourth, political certainty will also boost bank credits, especially infrastructure projects that are the focus of development. Automatically, credits to the construction sector will be faster. Credits to the construction sector rose 28.61 percent from Rp 244.13 trillion as of February 2018 to Rp 313.97 trillion as of February 2019. Unfortunately, the ratio of non-performing loans (NPLs) was quite high, 3.69 percent.
In addition to infrastructure projects, the government should focus on speeding up sectors that are able to absorb a lot of labor. This is expected to reduce the open unemployment rate, which reached 5.34 percent as of August 2018 and is targeted to slightly fall to 5.2 percent in 2019.
Suppose, the mining sector with credits which increased 32.91 percent (NPL 4.64 percent); electricity, gas and water sector 15.99 percent (NPL 1.14 percent); fisheries sector 12.40 percent (NPL 7.08 percent); agricultural sector 12.28 percent (NPL 1.35 percent); manufacturing industry sector 11.54 percent (NPL 2.76 percent); and the trade sector 9.82 percent (NPL 3.94 percent). Credit growth at the request of the real sector was very encouraging. Overall, the credits grew 12.13 percent (year to year) as of February 2019, including working capital loans, investment and consumption. Productive loans which included investment loans grew the highest by 13.96 percent and 12.75 percent for working capital loans, while consumption loans were "only" 9.55 percent.
However, consumption credits will explode during the fasting month and Idul Fitri, Christmas and New Year. Moreover, it is supported by the disbursement of social assistance of around Rp 96 trillion, salary increases for civil servants, and holiday allowances. The fruit is that the credit growth target according to BI of 12 percent and OJK of 12-14 percent will be realized by the end of 2019. Household consumption contributed the highest with 2.69 percent to GDP growth of 5.17 percent in 2018. Now, economic growth still relies on the pace of household consumption. Fifth, consumer loans in the form of housing loans (KPR), which grew 13.28 percent, apartment ownership loans (KPA) 24.16 percent, and vehicle loans (KKB) 9.86 percent, would be swifter. This credit is an indicator about the vibrant development of the real sector. Vehicle loans reflect the passion of the finance industry that continues to open automotive exhibitions. Several banks and developers are diligently holding home exhibitions. However, banks are required to improve credit quality towards business sector NPLs that are close to the 5 percent threshold. High NPLs will burden banks with impairment losses reserves, even eroding the capital.
Paul Sutaryono, Expert staff at the BUMN Study Center; banking observer; former assistant to vice president of Bank BNI
