Bank Indonesia (BI) is brushing aside concerns over lower-than-targeted lending despite rising inflationary pressure and interest rates, arguing robust corporate loan demand will drive 2008 lending growth.
The National Banks Association (Perbanas) predicted earlier this week that bank lending growth would be hampered by rising inflation and interest rates as the government is set to increase domestic fuel prices.
However, BI deputy governor for the banking sector Muliaman Hadad said Friday the sector would meet this year's 24 percent lending growth target driven by strong corporate loan demand.
"The year-on-year growth of total lending has been good and up until now (early May), banks have recorded 28.6 percent growth in total lending," Muliaman said.
From January to March, the banking sector recorded a 28.1 percent increase in lending compared to the first quarter 2007.
The government will soon increase fuel prices to help the state budget cope with soaring global oil prices, which have pushed up the fuel subsidy budget allocation.
As fuel prices increase, it is feared both inflation and BI key interest rates will rise too. Borrowing costs will rise, eventually stifling loan demand and weakening the economy.
Muliaman said the planned fuel prices increase would deter loan demand, but more from individuals than corporations.
"The fuel prices will surely affect purchasing power, reducing demand for individual consumption loans. On the other hand, corporate loan demand is high, especially for large projects.
"This year the banking sector has big demand for loans for infrastructure, power plant and plantation projects. I'm sure more will follow," he added.
Muliaman said, the lending sector was still promising.
"Even if demands from individuals decrease, this will be balanced by increased demand from companies."
According to Perbanas chairman Sigit Pramono, the planned fuel prices would not only dampen loan growth, but also boost non-performing loans (NPLs) as more people fail to repay loans.
NPLs fell from 4.78 percent in February to 4.33 percent in March, below BI's maximum required limit of 5 percent. (dia)
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