T

he Financial Services Authority (OJK) is upbeat a recently introduced stimulus program will encourage banks to spur loan growth in micro and small and medium enterprise (SME) segments, which has dropped significantly due to the country'€™s economic slowdown.

OJK deputy commissioner for banking supervision Irwan Lubis said the stimulus program, which includes a relaxation on micro and SME loan disbursement, would encourage banks to boost their lending activities in the two business segments.

'€œThe stimulus offers lower risk-weighted asset [RWA] calculations for micro and SME loans that are insured by regional credit insurance [Jamkrida], which is owned by several regions. So, it will push credit growth to those segments at a regional level,'€ Irwan said at a press conference on Thursday.

In an effort to boost loan growth, the OJK recently issued a regulation on temporary economic stimulus for banks. The regulation was part of a broader policy package for the banking and financial industries in response to the impacts of a weak economy.

The economic stimulus includes a reduction of the RWA ratio for insured-credit programs, such as the micro credit program (KUR), so that banks are more attracted to venture into them.

Prior to introducing the new package, the OJK only determined the ratio for the KUR that was insured by state-owned insurance company Perum Jamkrindo. A lower RWA ratio would mean lower risk perception, which would lead to lower loan provision by banks.

Irwan said the OJK would monitor routinely the effectiveness of the new measure, while also maintaining its incentives for banks that already increased portions of micro and SME loans to their overall credit, including through the means of adding micro and SME outlets.

According to a Bank Indonesia (BI) regulation, banks are required to channel at least 20 percent of their credit portfolios to the micro and SME sector until 2018, with a 5 percent increase of the portion every year from 2015.

Irwan said that as of July, the average portion of micro and SME loans in domestic banks stood at 19.75 percent, but each of them might have a different percentage.

Based on the OJK data, micro and SME loans accounted for Rp 754.6 trillion (US$52.12 billion) as of July, or equal to more than 60 percent of overall credit nationwide. The data showed micro and SME loans grew only 3.7 percent during January-July, or lower than overall credit growth of 4.34 percent during the same period.

Irwan said of the total amount, the five largest sectors contributed to the country'€™s micro and SME loans, namely wholesale and retail trading (Rp 385 trillion), manufacturing (Rp 78 trillion), construction (Rp 46.5 trillion), services and others (Rp 45 trillion) as well as agriculture and forestry (Rp 1.65 trillion).

The gross non-performing loan (NPL) ratio in micro and SME loans stood at 4.9 percent as of July, increased from 3.99 percent by the end of 2014, the data revealed.

As Southeast Asia'€™s largest economy saw its growth weakened to 4.67 percent in the second quarter, Irwan said the condition also impacted micro and SME loan growth, which made banks slash their overall loan targets this year to 12-13 percent, far lower than the previous 16-17 percent.