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Jakarta Post

LTV relaxation may help boost consumer spending

LTV relaxation policy will enable banks to manage their loan availability and expand lending, so that consumer spending will grow over the year.

Haryo Kuncoro (The Jakarta Post)
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Jakarta
Tue, November 7, 2017

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LTV relaxation may help boost consumer spending Lower down payments can motivate borrowers to use bank loans to buy more than one house. (Shutterstock/File)

T

he banking industry continues to face difficulties in increasing loan disbursement despite the low interest rate environment. A slight increase in lending growth to 8.4 percent in August from 7.9 percent in the previous month is relatively low amid stagnant consumer spending and sluggish business activity.

Households have tended to tighten spending, while companies have mostly delayed their expansions, both seemingly preferring to keep their funds in banks. The growth of third-party funds reached 9.4 percent yearon-year (yoy) in August on the back of a significant increase in savings and time deposits.

It is easier for banks to raise public funds, rather than disbursing them into productive loans in the real sector. The low lending growth is also partly due to relatively higher non-performing loans (NPL) in the country’s banking industry. Many banks’ NPLs are higher than the normal rate of 3 percent.

To help boost lending, Bank Indonesia plans to relax its loanto-value ratio (LTV) to lower down payments.

The relaxation will be implemented for real estate and vehicle loans and will be spatial, meaning that the LTV level in the regions will be different depending on their economic conditions,

Therefore, the LTV relaxation policy will enable banks to manage their loan availability and expand lending, so that consumer spending will grow over the year.

Based on BI Regulation No. 18/16/PBI/2016, the LTV level for a first home is 85 percent, second home 80 percent, while the third and so on 75 percent. The same rate applies to apartments. In addition, the LTV easing can only be enjoyed by banks with total real estate sector NPL of below 5 percent.

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