Local banks are set to tighten debt lending, particularly for real estate and property in low-lying coastal areas, an official said recently, due to fears of sea-level rise triggered by climate change.
Incentive and environmental funds officer Laksmi Dhewanthi (an assistant to the deputy environment minister) told a seminar recently that many local banks were planning to reassess prices of collateral assets in coastal areas.
"Banks are actively seeking details on the impacts of climate change. They are wary of a decline in prices of collateral in coastal areas," she said.
Indonesia's 81,000 kilometers of coastline are the second largest in the world.
Coastal areas are home to around 60 percent of the population in Java. Many luxury hotels and other buildings have been built in such areas, as well as fisheries, oil and gas industrial sites, agriculture and tourism areas.
"With a growing awareness of climate change issues, prices of properties in coastal areas have been greatly affected. Consequently, banks plan to tighten credit risk management," Laksmi said.
Indonesia is vulnerable to rising sea levels, which could lead to flooding of vast areas. Climate experts have predicted that a one-meter sea level rise would inundate some 405,000 hectares of coastal land and around 2,000 islands would disappear completely.
The government says global warming would also wreak havoc with the country's agriculture sector. A 1 degree Celsius temperature increase would reduce national rice production by approximately 10 percent.
Health officials have also warned that climate change would make people more vulnerable to outbreaks of water and vector-borne diseases like malaria and dengue fever.
Aside from the climate change issue, Laksmi said, local banks are also considering pro-environment policies before approving loans.
"They give priority to projects or companies managing environmental issues properly. Many major banks, both state and private, often come to our office to learn about green projects," she said.
"They also learn about the ecolabel standard certification of products."
Several financial institutions have made soft loans for environmental projects, she said. These include pollution abatement equipment from the Japan Bank International Cooperation (JIB) and industrial efficiency and pollution control from German-based Kreditanstalt fur Wiederaufbau.
The ministerial office had also launched several instruments to provide economic incentives to reduce pollution levels and environmental damage.
The Finance Ministry has introduced a decree to remove import tariffs on equipment that reduces waste (for example aerators, chemical pumps, return sludge pumps and air blowers).
The ministry also provides financial assistance to green projects including through performance bonds, a deposit refund system and soft loans.
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