B

anks continue to hold out hope that the government'€™s efforts to step up infrastructure projects will provide a final pick-up in loan disbursement in the final quarter of this year.

Bank Central Asia (BCA), the country'€™s biggest private lender by assets, maintains the belief that lending can only grow if the government accelerates spending, according to president director Jahja Setiaatmadja.

Loan draw-down from customers, Jahja said, remained low as purchasing power declined, leading to sluggish conditions in trade and other sectors.

'€œWhat we need right now is more disbursement of government spending to spur projects and increase the workforce, which in turn will increase purchasing power and loan growth,'€ he told The Jakarta Post recently.

Nationwide commercial banks posted a 9.4 percent year-on-year (yoy) increase in lending in July, with Bank Indonesia'€™s latest assessment predicting loan growth to rise to 10.9 percent in August, as state spending is expected to jump in the final months of the year.

Although only a small portion of its total loans are used for infrastructure projects, BCA is among the largest of the country'€™s banks prepared to provide credit for state construction projects this year. In previous years, BCA has been involved in various syndicated loan projects, such as toll roads, transportation and power plants.

The Joko '€œJokowi'€ Widodo administration, aiming to see the economy grow by 7 percent a year by 2019, plans to built 24 seaports, 15 airports, 5,000 kilometers of railways, more than 3,600 km of roads, 49 dams and power plants producing 35,000 megawatts, as well as upgrading public transportation in three big cities.

BCA'€™s outlook is shared by fellow private lender PermataBank, which also plays a role in financing national infrastructure projects, including in the energy sector, with total outstanding loans for the sector worth Rp 1.9 trillion (US$128.9 million) as of June.

'€œWe still have room to increase our loan disbursement for infrastructure projects in accordance with the government'€™s plan to accelerate them,'€ PermataBank wholesale banking director Anita Siswadi told the Post.

Many observers and business players in Southeast Asia'€™s largest economy are banking on the government'€™s infrastructure projects to jump-start an economy in which growth has slowed to the lowest level in six years.

But state budget disbursement continues to drag its heels, with only 53 percent of the year'€™s funds, or Rp 1.05 quadrillion, disbursed up to August, according to figures from the Finance Ministry.

The government introduced two economic policy packages in the space of the month of September to attract investment and boost growth through deregulation, cutting red tape and simplifying licensing procedures in a number of sectors.

The government will also soon release a long-awaited list of 100 priority national infrastructure projects under various ministries for the next five years, as part of a planned presidential decree that will help overcome common obstacles such as land acquisition.

Budi Satria, investor relations director at Bahana TCW Investment Management, insisted that aside from deregulation and simpler licensing procedures, the government'€™s main priority should be ensuring smooth land acquisition processes, a move that would increase confidence among investors.

'€œInvestors and private companies know that infrastructure development needs time, but they want to see improvements in implementation before they start investing to expand the projects and build surrounding facilities,'€ Budi said.

Bank Mandiri corporate banking director Royke Tumilaar agreed that land acquisition was the most difficult issue faced by the government in accelerating infrastructure projects, delaying disbursement of loans that had been agreed between banks and their state-owned enterprise (SOE) customers.

Land acquisition, Royke said, was a thornier question than permit issuance, as it included factors such as social tension.

According to Royke, of all infrastructure projects, toll roads are the most ready to begin construction, as a relatively simple land acquisition process meant that the road projects had finalized their concessions up to two years ago. Port developments, he added, were also fairly unproblematic because of their coastal situation, although they do require strict Environmental Impact Analyses (Amdal).

Given the present and future issues, Royke said, the bank predicted that its total Rp 30 trillion infrastructure loans in the pipeline would not be fully disbursed until next year, rather than the end of this year as previously planned.

'€œOur target for disbursement this year is Rp 10 trillion, but that looks like it'€™ll be tricky to achieve, what with the limited progress of projects. We'€™d only disbursed Rp 7 trillion as of September,'€ Royke said.

Despite these challenges, Royke said Mandiri was always prepared to seek feasible infrastructure projects, and had recently signed a new loan commitment worth Rp 1.15 trillion with Prima Terminal Petikemas, a subsidiary of state-owned port operator Pelindo I, for the expansion of Belawan port in North Sumatra.

Meanwhile, another state-owned lender, Bank Rakyat Indonesia (BRI), aims to disburse at least Rp 11 trillion new loans to SOEs this year, including for toll road projects and to state-owned electricity company PLN and oil and gas company Pertamina, according to BRI'€™s business and small and medium enterprise director, Mohammad Irfan.