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Fears of liquidity strains over state banks' loans to cooperatives

The initiative, which will channel up to Rp 400 trillion (US$24.3 billion) in funding, has raised concerns over a potential rise in nonperforming loans (NPLs) and liquidity strains.

Ruth Dea Juwita (The Jakarta Post)
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Mon, March 17, 2025 Published on Mar. 12, 2025 Published on 2025-03-12T16:45:55+07:00

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Fears of liquidity strains over state banks' loans to cooperatives Farmers dry rice during the harvest at Jatiluwih village in Tabanan, Bali, on June 18, 2024. Local farmers pick June as the best time to harvest the rice as the activity can attract tourists to their villages during the peak holiday season. (Antara/Nyoman Hendra Wibowo)

I

ndonesia’s state-owned lenders are facing fresh financial risks as President Prabowo Subianto moves forward with a massive plan to establish 70,000 to 80,000 village cooperatives nationwide, funded by a mix of village funds and bank loans.

The initiative, which would channel up to Rp 400 trillion (US$24.3 billion) in funding, is expected to put pressure on state banks Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Tabungan Negara (BTN), raising concerns over a potential rise in nonperforming loans (NPLs) and liquidity strains.

Doddy Ariefianto, banking analyst at Binus University, said forcing state banks to funnel hundreds of trillions of rupiah to newly established cooperatives “is theoretically possible but practically unsound”.

Distinct from traditional business structures, he argued no cooperative has yet demonstrated a viable and profitable model that is worthy of this scale of funding, especially given the many previous cases of fraud and defaults.

Speaking to The Jakarta Post on March 11, Doddy argued that even BRI, specializing in micro, small and medium enterprises (MSMEs) lending, lacked the capacity to handle these kinds of financing.

“SOE banks don’t have spare liquidity to finance MSMEs at scale, let alone cooperatives, which aren’t their core business,” Doddy said.

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Banks could push back by rejecting risky loan applications just as they would with any other proposals, Doddy noted.

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