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Banks Can Handle Tax Amnesty Funds, with Caveat: OJK

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e Financial Services Author-ity, or OJK, has warned against the government’s tax amnesty program — aimed at bringing home trillions of rupiah in off -shore assets — as it may in reali-ty harm the local banking sector with too much liquidity.

According to a tax amnesty bill

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BUSINESS >> Banks Can Handle Tax Amnesty Funds, with Caveat: OJK

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BUSINESS Banks Can Handle Tax AmnestyFunds, with Caveat: OJK

The Financial Services Authority, or OJK, has warned against the government’s tax

amnesty program — aimed at bringing home trillions of rupiah in off shore assets — as it may in reality harm the local banking sector with too much liquidity.

According to a tax amnesty bill currently be-ing discussed at the House of Representatives, it is estimated that some $42 billion of assets would come into local banks by the end of this year, as tax payers repatriate their off shore as-sets to bene t from tax incentives.

Muliaman D. Hadad, OJK chairman, suggest-

these funds should be channeled to nance government housing programs, as well as agriculture, maritime and infrastructure projects, or support the development of venture capital in the country.

“ e failure to distribute these funds into productive as-sets will result in an increase in the cost of funds,” Mulia-man told the House’s Commission XI, which oversees nance and banking, on Monday (25/04).

Banks need to have enough liquidity to fund loans, pay debts and prepare for unexpected expenses. But banks that have too much liquidity in hands are piling up lia-bilities without returns, hence the increase in the cost of funds.

Local banks had Rp 1,028 trillion ($80 billion) in cash or short-term central bank and government notes at the end of February, OJK data showed. at is enough to cover more than half of the lenders’ liability for three months or less as required by the central bank, said Nel-son Tampubolon, banking commissioner at OJK.

demands have yet to recover and commodity sectors are still coping with low global prices.

“Too much liquidity in the banking sector might lead to reckless loan disbursement and push in ation higher,” Muliaman said.

Maynard Arif, DBS Vickers Securities Indonesia head of research, disagreed with the OJK’s view, arguing massive infrastructure development in the country provides lenders with plenty of alternatives to lend to.

In addition, higher liquidity also means the banking sector can off er loans aggressively which, in turn, will lower the loan interest rate, Maynard said.

“Everything will depend on the regulation and its implementation,” he said.

Bank Indonesia Governor Agus Martowardojo said at the same hearing session that the tax amnesty program could bring home Rp 560 trillion in assets stashed abroad. About half of the funds would be placed in government bonds, Agus said.

e remainder will be channeled to commercial banks assigned by the Finance Minister, according to the latest dra of the tax amnesty bill acquired by the Jakarta Globe.

Still, where lenders should allocate their newly ac-quired funds remains a question. Outstanding loans among Indonesia’s 118 banks grew 8 percent by end of February from a year earlier, far slower than the double digit pace seen in past years, as domestic

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