High salaries of top bank execs not good for Indonesian banking industry

Indonesia’s bankers are the best paid in Asia while its banks are the most profitable in Southeast Asia.

Bank Indonesia, the central bank, revealed that top Indonesian bank executives earn an average of some US$1.27 million a year, including salary, pension and benefits.

This compares very favorably with Malaysia’s top banking executives who earned an average of US$592,000 annually; Thailand’s (US$211,000 annually) and the Philippines’ (US$116,000 annually).

On the other hand, banking research and regulation chief Mulya Effendi Siregar was worried that these high salaries contribute to inefficiencies in local banks.

Bank Indonesia said that the efficiency ratio of operating spending to operating revenues for local banks stood at 80%, the worst in ASEAN. The efficiency ratio of banks in Singapore and Malaysia ranged between 40% and 50%. Salaries are the largest operating expense for banks.

"Efficiencies must be made to cut costs. If ASEAN can do it, why can't we?" Mulya said.

Indonesian banks are also the most profitable in Southeast Asia with an average net interest margin of more than 5%, meaning banks charge high lending rates. Indonesian bankers say the high margins are necessary because of the high risk and high cost of servicing clients.