After the “burning” inflation and the “ghost” of stagflation, what happens to banks?

By Eko B. Supriyanto, Editor In Chief Infobank

Jakarta – DARK ALLEY. That is the prediction of the International Monetary Fund (IMF) for the global economy. Hard to predict. The ghosts of stagflation are everywhere. Global economy conditions next year will not be better than 2022. The yellow light is on in many countries.

Grateful, God loves Indonesia with a “windfall “. The windfall from rising commodity prices can at least be used to patch up subsidies and compensation for energy and fuel oil. However, must remain “eling lan waspodo” aware and alert.

Bank Indonesia (BI) has taken an ahead the curve stance, by raising the benchmark interest rate (BI 7-Day Reverse Repo Rate) from 3.5% to 3.75%. This increase is an anticipatory measure against rising inflation. That’s because the government’s plan to increase fuel prices. Inflation in July 2022 has reached 4.94% (year on year / yoy).

In line with that, like it or not, the government will increase the price of fuel. Because, if it is not increased, it is estimated that state finances will not be able to support energy subsidies which have reached Rp502 trillion. The figure will continue to rise if the need for energy subsidies continues to soar.

The economic growth in the first semester of 2022, which is 5.44%, is certainly something to be grateful for. Not many countries are as lucky as Indonesia. The increase in commodity prices, which adds to the state’s income by Rp420 trillion, is certainly a stroke of luck. Indonesia is indeed rich and loved by God.

In addition, the intervention of the State Revenue and Expenditure Budget (APBN) is recognized as being able to encourage economic growth. The National Economic Recovery Fund (PEN) can be a lubricant for economic growth. It must be admitted, although many ministers from parties talk more about coalitions and keep talking about presidential candidates.

Honestly, the impact of the destruction in various sectors due to COVID-19 has not been completely finished. The economic sector has also not recovered properly. So, it is better if the Financial Services Authority continues to extend the restructuring program. Or, apply to sectors that have recovered, for example the commodity sector.

Now, given the high inflation and the global economy that is in a state of “turmoil”, what the Financial Services Authority needs to do is not survive, or in other words, think simply that there are no bankrupt banks. However, it can also make banks continue to grow in providing credit. Policies are needed so that banks still have room to grow. This has been proven, during the COVID-19 pandemic, banks were still growing.

In line with that, don’t let any bank go bankrupt. Damn. The experience of 2020, when there were troubled banks, the Financial Services Authority, Indonesia Deposit Insurance Corporation and Bank Indonesia threw hot balls at each other. Wanting to ask Bank Indonesia as lender of the last resort, they were not given. Well, asking the Indonesia Deposit Insurance Corporation, they also don’t want to accept it because it hasn’t been submitted to the Financial Services Authority. Complicated. The trauma of Century Bank’s recovery is sticks everywhere.

There was throwing each other. Then finally asked state-owned banks to help. Although that didn’t happen either. How state-owned banks turn into “garbage cans” – to help sick banks. Why have Indonesia Deposit Insurance Corporation, Bank Indonesia, and Financial Services Authority? Hopefully no bank will run out of liquidity due to the impact of inflation, and this increase in interest rates.

The situation ahead is indeed difficult, but believe me, the Indonesian economy has a relatively strong “sawhorse”. This increase in inflation will indeed burden banks if they are not carefully about credit quality. Don’t let loan at risk (LAR) become Non Performing Loan (NPL). Low interest rates are just stuck and restructuring, what about high interest rates.

However, banks will continue to survive in a situation where inflation is starting to creep up. The backup is still enough to hold back the LAR that falls into the NPL. Maintaining a liquidity safe is very important, because funds will slowly move if no interest rate adjustments are made.

On the other hand, credit is also starting to feel hot. Banks will feel heavier, especially for banks that do not provide sufficient reserves. Banks are back in the safe zone, recalculating credit expansion. Because the economic atmosphere is also hot with inflation and the political year began to be felt earlier this year.

During the COVID-19 pandemic, the bank’s report cards remained shiny, and even their profits swelled, even though credit did not grow well. That’s because the interest rate on funds is low due to Bank Indonesia’s low interest rate policy. And, now Bank Indonesia is raising interest rates in the first phase and could be in the second and third stages, depending on how far inflation burns the economy.

That’s partly because of the “beauty powder” from the Financial Services Authority called credit restructuring. Many banks are “downloading” their reserves to profit, for treating collectability due to excessive fear due to the effects of COVID-19.

Now it would be better if the Financial Services Authority announced earlier, will the restructuring be revoked or extended? Also, to the government, will the fuel subsidy be revoked or will it continue to be “borne” by state finances?

The sooner the better. The ghost of “inflation” is everywhere. Mistakes can burn people’s money. (*)