Risk of higher NPLs, lower loan growth: BI

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Thu, 11/13/2008 10:37 AM  |  Business

The banking sector may face the possibility of a rise in bad loans next year, as businesses become less able to pay off their loans if there is an anticipated economic slowdown as a result of the global economic downturn, the central bank warns.

Bank Indonesia (BI) deputy governor Muliaman D. Hadad said Wednesday that although the rate of non-performing loans (NPLs) was currently relatively low, the risk of businesses finding themselves unable to pay off debts was there, particularly for those engaging in commodity sectors.

"Although NPLs are low, we need to be cautious with (businesses in) the commodity sector," Muliaman said, adding that declining commodity prices would reduce such businesses' profits.

According to BI, the rate of NPLs in September stood at 3.90 percent of Rp 1,287.40 trillion (US$111.22 billion) in loans, below the central bank's maximum tolerance of 5 percent. Third-party funds meanwhile stood at Rp 1,601.50 trillion, making the loan-to-deposit ratio about 80.39 percent.

The government, under the proposed 2009 state budget, aims for 6 percent economic growth next year. In the third quarter of this year, the central bank said the economy had already grown by 6.3 percent compared to a year earlier.

Muliaman said the impact of the global economic downturn would also affect the rate of growth in bank loans, which he forecast would only grow by 22 percent next year, lower than the 33 percent growth forecast for the end of this year.

"A 22 percent lending growth is reachable (in 2009)," he said.

BI deputy governor Hartadi A. Sarwono said earlier that loans for working capital would comprise the core lending in 2009, while investment and consumer loans might reflect slower growth.

Zulkifli Zaini, a director at state-run Bank Mandiri, Indonesia's largest lender by assets, agreed that the higher risk of bad loans was there, in particular for selected business sectors.

He said about 10 percent of the bank's lending went to crude palm oil (CPO) businesses, which might be unable to pay off debts as CPO prices had declined.

"We can't set aside (the fact) that commodity prices have declined. Perhaps debtors' ability to pay off debts will be reduced," he said, adding that Mandiri chose to disburse loans to selected debtors to avoid increasing NPLs.

Economist Faisal Basri said the banking sector remained robust despite the global financial crisis, but warned that state-run banks might suffer losses if they did not manage lending prudently.

"State-run banks -- Bank BRI, Bank BNI, Mandiri -- are carrying bad loans by (PT Semen) Bosowa and (PT) Bukaka (Teknik Utama). These make the banks less healthy as they keep restructuring these loans," he said.

Mandiri in September signed an agreement with Bosowa to restructure Rp 1.7 trillion in debts to the bank, while BNI in August resolved Bosowa's Rp 584 billion debts to the bank. Bosowa is controlled by Aksa Mahmud, Vice President Jusuf Kalla's brother-in-law.

He added that state-run banks should be firm when dealing in a loan agreement with companies related to top government officials if the banks wanted to remain robust.

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