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State-owned banks in quandary over LRT
Amid an ongoing struggle to lower their bad debt ratios, state-owned banks have to deal with another headache because of the government’s request they provide hefty loans at low interest rates for the light rail transit (LRT) project in Greater Jakarta
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mid an ongoing struggle to lower their bad debt ratios, state-owned banks have to deal with another headache because of the government’s request they provide hefty loans at low interest rates for the light rail transit (LRT) project in Greater Jakarta.
Construction of the LRT project, expected to be operational by May 2019, is currently underway with labor working on multiple shifts 24 hours a day.
The project will cost a total of Rp 27 trillion (US$2.02 billion), with Rp 23.3 trillion allocated for railway infrastructure and the remainder for rolling stock.
A 2016 presidential regulation stipulated that a third of the total funding for the LRT project, one of the country’s national strategic projects under President Joko “Jokowi” Widodo’s administration, would come from the state budget, while the rest would be from bank loans.
As of March, the government has so far contributed about Rp 2 trillion for the project, mainly through capital injections. State-owned construction firm PT Adhi Karya, the contractor of the project, meanwhile, has allocated about Rp 3 trillion from its own coffers to partly finance the project.
While a global economic slowdown has forced the government to tighten spending and banks to be extra prudent when it comes to disbursing loans, alternative sources of funding are being sought from major state-owned banks, which are expected to provide loans at low interest rates.
Speaking on the sidelines of a recent coordination meeting to discuss the progress of the LRT construction, Coordinating Maritime Affairs Minister Luhut Pandjaitan said the government expected state-owned banks, such as Bank Mandiri and Bank Negara Indonesia (BNI), to provide loans at interest rates as low as 7 percent.
“We are still discussing the interest rates,” Luhut said. “If they [state-owned banks] impose an 8.5 percent interest rate, the government will need to provide a huge subsidy. We are trying to push it down to 7 percent.”
Besides Mandiri and BNI, state lender Bank Rakyat Indonesia (BRI) and state infrastructure financing firm PT Sarana Multi Infrastruktur are on board to provide financing as well.
The construction of the LRT in Greater Jakarta, Southeast Asia’s biggest metropolitan area, meanwhile, was divided into two phases. The first phase will run between Bogor in West Java and Jakarta along a 42.1-kilometer track. Meanwhile, the second phase will construct another 41.5 km of track.
Bank Mandiri president director Kartika “Tiko” Wirjoatmodjo, who attended the meeting with Luhut, said the LRT project is to receive up to Rp 18 trillion in additional funding from the banking sector, “with about Rp 4 trillion to Rp 5 trillion coming from each participating lender.”
“The tenure will be from 16 to 18 years. We are still calculating, negotiating from the project’s risk factors the facility that can be given to it,” he said over the weekend.
The participating banks, he added, proposed several requirements in the negotiations that include a government guarantee for the project, a cash top-up from the state budget should the LRT’s fare revenues not be enough to repay the loan and the creation of a treasury account at each state bank to keep government funds.
The 7 percent interest cap requested by the government will be much lower than the 9.75 to 10.5 percent currently being offered on corporate loans by the biggest four banks — Mandiri, BNI, BRI and Bank Central Asia (BCA).
Mandiri, the country’s largest lender, already had its net profits plummet by 32.1 percent year-on-year (yoy) to Rp 13.8 trillion last year on the back of rising bad debts.
The publicly listed lender saw its gross non-performing loan (NPL) ratio soar to 4 percent in 2016 from 2.6 percent a year earlier.
Separately, BNI president director Achmad Baiquni said his firm’s financial conditions still allowed it to finance infrastructure projects, including the LRT. He said the bank was ready to allocate Rp 5 trillion to Rp 6 trillion in loans for the project.
Achmad, however, said BNI was still in negotiations with the government over the latter’s request for banks to collect a low 7 percent interest rate.
“During the negotiations, the 7 percent interest cap might go up, or maybe we would ask the government to place an amount of money [in our bank] with a certain interest so that our margins would not be severely eroded,” he said. (hwa/tas)
