Background
Demand pull inflation?
There was a cut interest rate by
the central Bank in the early of February 2015, the central decrease interest
rate from 7.75 % in to 7.5 %. Based in the illustration of demand pull
inflation cycle, the aggregate demand will rise due to the cut of interest rate
and increase of government spending. Those will increase price level up. It may
be an initial effect of demand pull inflation in the early of 2015. The
aggregate demand shift rightward and it may create new equilibrium price at
above real GDP as illustrated in the graph.
In the second step at the short
run, there may be an adjustment of wage rate due to higher aggregate demand,
the short run aggregate supply shift leftward and its movement will increase
the price level. That will be happened if the aggregate demand constant.
If the real GDP exceed the
potential GDP, the wage rate will increase due to more demand in the market
which gets the company increase its production rate to fulfill the increase of
demand. If the aggregate demand is constant and the cost of production
increase, the producer will decrease its production rate.
Option of Bail in
As we know there were many
banking companies in domestic had been bankrupt in 1998 due to massive monetary
crisis, among of them were combined in merger and acquisition. Central Bank was
allocating its fund to conduct the bailout program amounting to IDR 600
trillion include its interest.
According to the former ministry
of economic coordinator, KKG, there were certain big losses in its bailout
program. The government sold the bank companies which had already been improved
and recovered by the central bank’s bailout program in price rate of share
which were smaller than its cost of recovery. BCA and Bank Dagang Negara were spent
a lot of fund for recovery program. The cost of each was bigger than the
auction of its share.
If there will be a bail in
program to pay the cost of recovery in 1998, among of bank companies will spend
their money for it. For example, Bank central
asia which was sold IDR 10 trillion to farallon, the share price is lower than
its total cost which was amounting to IDR 88 trillion. There is a gap amounted
to about Rp 78 trillion. On other hand the case of Bank Dagang Negara is almost
similar, government was spending bigger cost than its sold price. There is a long debate on its Master
Settlement and Acquisition Agreement (MSAA).
BBNI
The company is state company
which is owned by government as the majority shareholder. The company
established in 1946 by raden tumenggung Margono.
Based on its annual report, the
biggest part of the total gross loan is at working capital segment in 2014. It
was about 50 % of total gross loan by type of loan. Meanwhile, by economic
sector perspective, the biggest part of the gross loan was manufacturing
segment which was 24 % of total gross loan.
Based on annual report 2014, 15 %
of the gross loan was in foreign currency and the foreign currency loan is
given for mining sector which was as greatest segment with 36 % of total
foreign loan.
It may be necessary to assess the
credit risk of foreign loan due to stability of rupiah currency in money
market. Rupiah currency started to lift up because of intervention from central
bank and it was not happening by the condition of domestic economy.
In 2014, the company could
increase its loan growth (gross) 10.8 % up than the gross loan in 2013. Although the growth of the gross loan in 2014
was decline compared to its growth in 2013 which was 24.9 %, the company could
increase loan to deposit ratio from 83.5 % in 2013 to 86.2 % in 2014. The
decline of loan growth was occurred due to decline of GDP growth from 5.8 % in
2013 in to 5.0 % in 2014 as illustrated in the picture at below.
Deposit from customer was also
falling down from 13.3 % in 2013 in to 7.5 % in 2014. The Inflation rate may be
as the main factor of the downfall of its growth. The cost of living increase
sharply as rupiah exchange rate fell and government stop to import particular
goods such as rice as its self fulfilling program for rice supply. As the
result of that, people spend more money for their cost of living.
In conclusion banking industry is
still interesting segment for entry, Indonesia provides higher net interest
income margin compared to financial industry at others south east asia country.
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