BI rate increase may result in nonperforming loans

The Jakarta Post ,  Jakarta   |  Thu, 09/04/2008 7:05 PM  |  Business

Bank Indonesia's (BI) decision to raise the key rate to 9.25 percent has generated worry about a large increase in nonperforming loans.

Chief economist at state owned Bank Rakyat Indonesia, Djoko Retnadi, said the rate raise may lead to an increase in the cost of funds, eventually resulting in the swelling of nonperforming loans.

"The decision was BI's effort to stabilize the exchange rate, but it also increases chances of nonperforming loans," said Djoko, as quoted by Tempointeraktif.com.

He, however, said BI's measure was reasonable because the central bank was preventing capital outflow in the case of a negative interest rate.

Separately, BI deputy governor Muliaman D. Hadad said that although several banks have made changes to their business plan, they were not big enough to effect loan growth.

He said BI targeted to have 24.6 percent, or Rp 246.2 trillion (US$26.8 billion), growth in loans this year distributed to productive sector as capital or investments with low nonperforming loans rates. The central bank considered consumer loans could be pressed as they were related to inflation.

BI recorded that until June this year, as much as Rp 1,190 trillion loans, with Rp 944.9 of it in rupiahs and the rest in U.S. dollars, were distributed. The nonperforming loans ratio was recorded at 4.1 percent or Rp 48.6 trillion in the same month, which was a decrease from 4.3 percent or Rp 49.1 trillion the previous month. (dre)

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