Banks post miniscule lending growth

The Jakarta Post ,  JAKARTA   |  Thu, 03/19/2009 12:31 PM  |  Business

Nearing the end of the first quarter, the central bank records miniscule growth of 0.1 percent in bank lending, a Bank Indonesia (BI) official says, far slower than a year earlier, as high interest rates and uncertainties have cut demand.

Despite the low figure however, Wimboh Santoso, head of the central bank’s monetary system stability division, said Wednesday that lending demand was usually low in the first quarter of the year and would normally pick up significantly in the following quarters.

“It’s a seasonal trend to see sluggish lending growth during the first quarter,” said Wimboh said.

According to Wimboh, based on the commercial banks daily reports, as of the third week of March, lending grew to Rp 1,286.1 trillion (US$106.5 billion) from Rp 1,284.7 trillion last December, representing less than Rp 2 trillion in growth.

According to the BI report, by comparison, lending grew by 3.4 percent in quarter one of last year.

Still, Wimboh is optimistic that lending will see substantial growth in the second quarter, emulating trends in previous years.

According to the BI report, after recording only 3.4 percent lending growth in the first quarter of last year, lending rose by 8.2 percent from Rp 1,061.8 trillion last April to Rp1,148.4 trillion last June.

“We’ll just wait and see if lending increases. If not, we will take measures to boost lending,” he said, without elaborating.

The central bank governor Boediono has said that bank industry lending is forecast to rise by an average of 15.6 percent this year, far lower than last year’s average growth of more than 30 percent, because banks would be more careful in extending loans given slower growth, to avoid a possible rise in bad loans.

Economists estimate that for the economy to grow by more than 4.5 percent in 2009, bank lending would have to grow by at least 18 percent.  

Finance Minister Sri Mulyani Indrawati said recently that the economy is expected to expand by 4.5 percent this year amid the global economic downturn, slower than the 6.1 percent booked in 2008.

The slowing down in lending growth is a wake-up call for the economy, with many industries  now struggling  to cope with the impacts of the global economic crisis.

Companies will consequently have less room to expand.

Interest rates are still considered to be quite high, which may further discourage new lending proposals.

While average lending rates have shown a slight decrease between December and March, according to BI, the rates remain unattractive for companies because they are still reorganizing their businesses to anticipate further uncertainties.

This year, BI has cut its benchmark interest rate by 150 percentage points to a near four-year low of 7.75 percent.

Meanwhile, Wimboh said that based on the commercial banks daily reports, the level of third party funds in the sector rose by 3.4 percent from Rp 1,710.1 trillion last December to Rp 1,768.7 trillion as of the third week of this March, indicating a liquidity boost to the sector.

“There should not be a problem in liquidity by now,” he said.

Wimboh also said that the elections would also boost banks’ liquidity as political parties would spend a lot of money on their campaigns.

“The money they spend will go to the banks, therefore boosting liquidity,” he said. (fmb)

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