BI plans new ruling to up lending

The Jakarta Post ,  Jakarta   |  Wed, 08/08/2007 12:54 PM  |  Business

Urip Hudiono, The Jakarta Post, Jakarta

The central bank is planning a new regulation for the banking industry to further promote lending, which has improved in the first half of this year from last year's credit slump.

The planned regulation will in particular promote ""indirect lending"" by allowing banks to count portfolio investments such as corporate bonds as regular lending, Bank Indonesia spokesman Budi Mulya said Tuesday.

He said that with the new regulation, banks' portfolio investments would be treated as commercial lending, so they would be included in the calculation of loan-to-deposit ratios (LDRs).

The regulation is also expected to support Indonesia's recent efforts to deepen its financial markets, with banks likely to disburse more funds through the markets.

""This will in turn also spur the real sector, as companies can then invest funds raised from issued bonds bought up more by banks for expansion and further investments,"" Budi said.

""Meanwhile, for BI, it will also facilitate our efforts to consolidate the banking industry,"" he said.

Bank Indonesia Deputy Governor Siti C. Fadjrijah earlier said that as well as the new regulation, which could be issued as soon as next month, the central bank intended to push further industry consolidation by 2010 through bank mergers and acquisitions.

The central bank has indeed required so-called ""anchor banks"", which will lead the merger and acquisition process, to have a consistent LDR above 50 percent, aside from a minimum 22 percent actual annual loan growth, a minimum 12 percent capital adequacy ratio (CAR) and a maximum 5 percent net non-performing loan (NPL) level.

Bank Indonesia also has linked higher LDRs with lower amounts of funds that banks have to keep at the central bank as a minimum reserve, implying banks with high LDRs will have more liquidity to channel as loans.

The central bank's latest assessment of the sector's lending performance shows that total outstanding loans as of the end of June picked up by Rp 38.5 trillion (US$4.2 billion), or 4.4 percent, from May.

This is the highest lending growth so far this year, with BI noting that lending is continuing to grow by a preliminary Rp 10.5 trillion in July.

The banking industry's monthly bad loan level also showed improvement, with the gross NPL decreasing to 6.4 percent from 6.7 percent, and the net NPL level to 2.9 percent from 3.1 percent.

However, there is still criticism of the industry's lending performance, which grew by just 14 percent last year, with most banks continuing to place their funds in central bank bills.

Industry analyst Djoko Retnadi said BI's planned regulation would likely boost the performance figures of the industry, but do little in actually driving the real sector.

""If it's really increased lending for the real sector that BI is after, it could instead issue a regulation requiring banks to gradually increase their lending to small businesses to up to 30 percent of a bank's total loan portfolio, while limiting consumer loans to only 20 percent.

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