Bank Indonesia (the central bank) issued on Friday a new rule to “force” banks to disburse more loans amid growing concern that they are still reluctant to lend to productive sectors.
Speaking to reporters Bank Indonesia Governor Darmin Nasution said the new policy, which would require banks to keep their loan-to- deposit ratio (LDR) within the range set by the central bank, was needed to ensure that banks would be able to implement their intermediary role as a source of financing for the economy.
Starting from March 2011, banks with LDRs outside the range of 78 to 100 percent will have to maintain higher reserve requirements as the penalty, or as a disincentive, Darmin added.
Deputy Governor Muliaman D. Hadad explained that banks with LDRs lower than 78 percent would have to pay a penalty by increasing their primary reserves at the central bank by allocating another 0.1 percent of their deposits to their reserve for every percentage of their LDR shortage.
As for banks with LDRs higher than 100 percent, they would have to increase their primary reserves by 0.2 percent of their deposits for every percentage of their LDR excess.
However, Muliaman said, if banks had LDRs higher than 100 percent and a capital adequacy ratio (CAR) of more than 14 percent, then there would be an incentive. “The incentive is that they would not have to pay the penalty of allocating higher primary reserves,” Muliaman said.
Darmin said the regulation was expected to encourage banks to lend more in support of the economy and its introduction aims to ensure that banks will perform their intermediary functions.
“Year to date, average banks loan growth stands at 20.2 percent, so there’s no urge to implement the regulation right away. Banks will have about six months to catch up [with the required] range,” Darmin added. According to Muliaman, the average LDR of the banks now stood at 76 percent year to date.
However, analysts said that many banks were still reluctant to increase their loans to the productive sectors as the economy has not yet fully recovered. The banks still prefer to channel their funds to consumer financing and property sectors or to risk-free government bonds.
Analysts hailed the new regulation, saying that it would push the banks to disburse more loans as they were expected to play a greater role in helping the country push forward economic growth.
The government raised this year’s economic growth forecast to 6 percent, from the initial target of 5.8 percent, after the Central Statistics Agency announced the first half growth of 5.9 percent.
“This is when banks’ commitment to optimize their intermediary function is being tested. The new regulation is important for people’s welfare, because it means more loans would be channeled,” said Bank Mandiri’s economist, Martin Panggabean.
Of 10 largest banks by asset in Indonesia, there are five banks with LDRs outside the set range, based on their performance in the first half of this year, namely Bank Mandiri (66 percent), Bank BCA (51 percent), Bank BNI (68 percent), Panin Bank (77 percent), and Bank BTN (116 percent).
Based on the new LDR regulation, if the numbers remained the same until March 2011, when the new regulation will come into force, then Mandiri would, for example, have to increase its primary reserves by 1.2 percent of its deposits as the penalty of having a 12 percent shortage in its LDR position. With total deposits of Rp 326.6 trillion in the first half, this would mean that Mandiri would have to add Rp 3.91 trillion to its primary reserves at the central bank. (est)
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