Banks cope fairly well amid inflation threat: BI

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Fri, 06/06/2008 1:15 AM  |  Business

Bank lending grew at a slower-than-expected 5.5 percent during the first four months of the year compared to a year earlier and the full-year 2008 growth target of between 22 to 24 percent, a central bank report shows.

The central bank stressed the banking sector had performed fairly well overall so far this year, pointing to a rising trend in year-on-year loan growth since the start of the year.

Year-on-year lending in January grew 26.1 percent, 26.6 percent in February, 28.1 percent in March and by 29 percent in April, Bank Indonesia (BI) said in a media statement released Thursday.

On a monthly basis, lending grew 2.1 percent from Rp 1,080.1 trillion (US$115.95 billion) in March to Rp 1,103.1 trillion in April.

"About 71 percent of the total lending went to working capital loans," the statement said.

In response to a 25.5 percent rise in banks loans last year compared to 2006, BI set a 2008 loan growth target of 22 to 24 percent. BI expects the high rate of growth to help secure the government's 2008 economic growth target of 6.4 percent.

At the end of last year, loans stood at Rp 1,045.7 trillion.

For the rest of the year, BI said banks would prioritize lending to the trade, hotel and restaurant sectors.

The country's banking sector has coped well amid an inflation rate that has accelerated to 10.38 percent in May from a year earlier due mostly to increases in the price of fuel.

Economists forecast inflation will remain high this month on ensuing effects of the price hikes.

BI has signaled it will increase its scrutiny of lending to ensure borrowers do not fall victim to rising inflation, and to avoid an increase in non-performing loans (NPLs).

Gross NPLs slightly rose from 4.33 percent in March to 4.39 percent in April from the previous Month.

April's loan-to-deposit ratio stood at 74.4 percent, rising from 73.7 percent in March, while third-party funds reached Rp 1,481.8 trillion, up 1.1 percent from Rp 1,466.2 trillion in March.

On Thursday, BI raised its interest rate by 25 basis points to 8.5 percent to cushion inflationary pressures.

However, Bank Negara Indonesia (BNI) economist Ryan Kiryanto said he doubted other banks would follow suit.

"I think the rise of the BI rate is moderate and it should not be responded (by banks) by increasing (their) interest rates," he said.

Copyright © 2008 The Jakarta Post - PT Bina Media Tenggara. All Rights Reserved.