BI promoting loans to publicly listed firms

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Tue, 04/15/2008 11:37 AM  |  Business

The country's central bank, Bank Indonesia (BI), is set to issue a new regulation Tuesday aimed at empowering banks to channel more loans to publicly listed companies.

Under the new regulation, banks will be allowed to disburse more loans to companies whose shares are at least 40 percent owned by the public, BI director of banking research and regulation Halim Alamsyah said Monday.

The new ruling will replace existing BI regulations which only allow banks to lend up to 10 percent of their capital to affiliated parties. For unaffiliated parties, meanwhile, banks can lend up to 20 percent of their capital to individual clients and up to 25 percent to group borrowers.

Halim, however, did not mention the exact percentage increase in allowed bank loans, although he did say the new ruling would lure the corporate sector to borrow more money, thus driving the country's real sector.

As of February, banks have disbursed Rp 1,045.9 trillion (US$113.86 billion) in loans and received Rp 1,474.5 trillion in third-party funds, capping the loan-to-deposit ratio (LDR) at 70.9 percent.

The rate of banks' gross non-performing loans (NPLs), meanwhile, was 4.87 percent, below BI's maximum tolerable rate of 5 percent, indicating the banking sector remained sturdy amid the economic slowdown, Halim said.

In accordance with the new regulation, BI will also restructure the mechanism of lending, including the one for small- and medium-sized businesses.

The new regulations aim to boost the country's bank loans to the real sector amid weakening global economic conditions.

Halim is upbeat the banking sector will remain healthy despite the global challenges, citing the so-called stress tests conducted recently.

The stress tests included measures against the possibility of an increase in BI rate, the fluctuating rate of rupiah against the U.S. dollar and the weakening price of government bonds.

"Through the tests, we concluded the banking sector is strong enough to cushion market volatility, in terms of liquidity, solvability and profitability," he said.

Against the rise of 100 basis points of BI rate, for example, the banking sector's capital adequacy ratio (CAR) will decrease only by 0.3 percent, he added.

According to BI, the banks' CAR is now between 19 percent and 20 percent, meaning they are able to meet the market, credit and operational risks.

BI expects the banks' total lending this year to grow by between 22 percent and 24 percent, up from Rp 1,045.7 trillion in 2007.

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