Bank fund management (2):

lending and bank liquidity

By
Dr. Suhardi, S.E., M.M.
Part 4
SUBJECT

1. Credit Disbursed by the Bank

2. Banking Liquidity
Credit channeled by the Bank

 Loans disbursed by banks to the public is one

form of use of bank funds that generate
income for banks.
 All bank financial institution obligations are in
the form of money but all non-bank financial
institution obligations are not in the form of
money (Hanson, 1983: 31-33: Insukindro, 1993:
27)
 Bank Earning Assets

 A bank's productive assets can be:

o Funds used by banks for lending to the public
o Funds placed by banks in the form of savings, current
accounts and deposits at other banks or other financial
institutions
o Funds added by banks in the form of bonds and shares
 Because its status is a Bank, most of the bank's
productive assets are in the form of channeling funds
to the public in the form of credit.
Credit type

 The maximum amount of bank funds channeled in the

form of credit for each debtor is generally regulated
by the monetary authority through Bank Indonesia
regulations, such as BI Regulation No. 11/13 / PBI /
2009 dated 17 April 2009 for BPR
 Credit can be seen from several aspects;
o The purpose of credit  to get bank profits and
improve the community's economy.
o Credit function  increase the efficiency of money,
increase payment traffic.
o Types of Credit  are distinguished according to their
nature, purpose, time period, and guarantee.
Credit Terms

• To prevent productive assets or loans from becoming

non-current, loans must be complied with;
o Time
o Collateral
o Credit Interest
o Type
o Group
Credit Risk Classification

 Credit risk is based on several categories according to

the rate of return or the level of collectivity (for BPR),
namely;
o Good quality credit or good credit or Collectible credit
1
o Non-current quality credit; divided into collectibility
loans 2, 3, 4
 Commercial Bank Credit;
o Current quality credit or collectibility credit 1
o Credit under special supervision 2,3,4,5
Credit Risk Classification (cont)

 BPR credit is determined based on Bank Indonesia

Regulation No. 13/26 / PBI / 2011 dated 28
December 2011;
o 0.5% of earning assets classified as current or L
o 10% of non-current earning assets after deducting
the value of the collateral held or TOS
o 50% of doubtful earning assets after deducting the
value of the collateral held or D
o 100% of the productive assets that are loss after
deducting the collateral value or M
Credit Terms

 Analysis of loan applications to prospective borrowers / debtors

with 5C and 4P
o Character / character
o Ability / Capacity
o Capital / Capital
o Assets / collateral collateral
o Economic Situation / Condition of economy
o Loan purpose / purpose
o Payment of credit installments / payment
o Profit / profitability
o Protection / protection
Earning Assets Collectibility

Loans are classified as current, substandard, doubtful, loss;

•Substandard credit
•Doubtful credit
•Bad credit
oCredit according to its nature
oCredit according to usage
oCredit by economic sector

In terms of collectivity, planting a bank;

•Smooth planting
•Substandard planting
•Planting is in doubt
•The planting is stuck
 cont’

 Allowance for earning assets or doubtful accounts

o Amount of allowance for earning assets of banks;
• All earning assets are classified as current, substandard,
doubtful and loss
• Amount of reserves of each class of assets

o Not all earning assets are made allowance for:

• Earning assets embedded in SBIs
• Earning assets included or embedded in equity
• Earning assets with collateral in the form of liquid collateral,
such as savings, deposits, current accounts
Fixed Assets, Inventory, and
Depreciation
 Fixed assets and bank inventory is one form of use of
bank funds intended to facilitate bank operations
 Bank capital used for the procurement of fixed assets
and inventory must also be recovered through the
depreciation reserves of fixed assets and inventory so
that all funds in the bank do not shrink.
 The method of depreciation of fixed assets and inventory
is carried out according to the rules of depreciation of
fixed assets and non-bank company inventory
 The amount of bank capital that can be used to procure
fixed assets and inventory is regulated by the Central
Bank, which is currently a maximum of 50 percent
Miscellaneous assets

 Various forms of bank assets in the form of bank assets

that cannot be grouped into bank assets such as
inventory forms, blanks, bank temporary charges,
electricity or water security deposits, installments on
tax payments that are recorded as advances, etc.
 Miscellaneous assets cannot be depreciated so that the
replacement is done by charging fees that reduce bank
income
 BANK LIQUIDITY

 The purpose of managing cash in a bank is:

o Meet the normal transactions on the bank every day
o Meet unexpected transactions in the bank
o Meet opportunities that benefit the bank.
 Provision of cash in a bank needs to consider the basis of:
o The distance between the bank office and other fund
storage facilities.
o Costs incurred in every cash offer.
o The pattern of withdrawing money from savers or
creditors.
o Security of depositing cash at the bank's own office.
Thank You