The local shipping industry requested more bank loans Monday to support the anticipated rise in shipping demand caused by a government policy banning foreign vessels from transporting goods between local ports.

Director general of sea transportation Effendi Batubara said the shipping sector needed a lot of funds following the enactment of the 2005 presidential decree on "cabotage principle", which will be fully applied after 2011.

The principle will only allow locally registered vessels to ship domestic commodities between ports in Indonesian waters.

To expand local fleet and shipyard capacity, the Transportation Ministry has estimated financial needs of more than Rp 34 trillion until 2010.

According to the ministry, Indonesian flag vessels last year carried 148.7 million tons of domestic cargo, or 65.3 percent of total cargo, while the remaining 34.7 percent was still served by foreign shipping companies.

Bank Indonesia (BI) said the banking sector only disbursed Rp 9.8 trillion in loans to the shipping industry last year, just a small portion of the sector's total lending of Rp 1,000.81 trillion.

"The amount, however, rose by 88 percent from Rp 5.22 trillion disbursed in 2006," BI deputy governor Muliaman D. Hadad said.

The rate of non-performing loans for the shipping sector declined to 3.8 percent in 2007 from 11 percent in 2006, signaling the sector's healthy performance.

"The number showed a remarkable improvement for the industry," said Muliaman.

"With these figures, I don't see any reason for banks not to actively channel loans to the industry," he said, adding the lack of awareness about the issue among local banks was the main reason for the low number of loans.

"Banks still perceive the shipping industry as high-risk and slow yielding. That is why they are not that involved in the sector," he said.

Because of these difficulties, the local shipping industry has been exploring alternative funding from the capital market and foreign financial banks and institutions.

Chairman of the Indonesian National Shipowners Association Oentoro Surya said the industry had to seek other sources of financing to keep businesses afloat because there was a local stigma the industry was high-risk.

He explained banks were reluctant to give loans because the industry had no legal basis to give its vessels as collateral.

"Banks will not disburse loans without collateral," he said, adding the current deliberation of the shipping bill would provide a legal basis and enable local shipping companies to easily get loans from local banks.

The House of Representatives is set to endorse the bill next month.

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