T

he Financial Services Authority (OJK) has called on banks to keep a watchful eye on loans granted to the construction sector this year, citing increasing bad loans in 2014.

OJK strategic policy department head Imansyah said on Friday that the regulator had detected quite a significant rise in the non-performing loan (NPL) ratio in the construction segment.

'€œConstruction loans actually posted the highest growth of all lending segments last year, with a 27.2 percent rise year-on-year. However, at the same time, its bad loans also grew and approached the ceiling,'€ he said at a press briefing.

According to OJK data, the total amount of loans disbursed to the construction sector reached Rp 147.67 trillion (US$11.56 billion) in 2014. The amount of bad loans stood at Rp 6.5 trillion, or 4.4 percent of the total.

The NPL ratio surged from the 4.1 percent recorded in 2013 and had inched closer to the 5 percent ceiling set by financial regulators.

Imansyah said the time lag between payment from project owner to contractor and payment from contractor to bank had become one of the main causes of bad debts. The problem, he added, existed both in public and private projects.

In the public sector, the government usually disburses spending funds in the third or fourth quarter.

'€œWe ask the government to help solve this problem. Maybe there'€™s a way to expedite payment to contractors so that they will be able to repay the loans on time,'€ he said.

However, despite the rising NPL ratio, the amount of construction loans was only equal to 3.9 percent of total loans reported by the banking industry last year.

Besides in construction, last year the OJK recorded similar bad loan increases in several other sectors as well, namely mining and quarrying, transportation and warehousing, and wholesale trade.

The NPL ratio rose to 2.4 percent from 1.51 percent for mining and quarrying, surged to 2.9 percent from 1.96 percent for transportation and warehousing and climbed to 3.1 percent from 2.47 percent for wholesale trade. Contacted separately, Bank Negara Indonesia (BNI) director Krishna Suparto acknowledged that there had been a rise in construction sector bad loans last year.

'€œWe noticed that some subcontractors, in both public and private projects, experienced difficulties due to sagging finances. Some asked for leniency in loan repayments,'€ he said in a telephone interview.

The state lender, according to Krishna, predicted that the situation would persist this year because the subcontractors'€™ liquidity had not fully improved.

'€œTo prevent rising bad loans, we will be more selective in determining new subcontractors to work with. We will also scrutinize the finances of subcontractors that ask for an extension to their repayment period,'€ he said.

The bank'€™s 2014 financial report shows that it channeled up to Rp 12.09 trillion to construction projects, equal to 4.5 percent of its outstanding loans. The NPL ratio in that sector stood at 4.4 percent last year, down from 4.8 percent in 2013.

Meanwhile, OCBC NISP president director Parwati Surjaudaja said the bank had maintained a healthy level of NPL within the construction loan segment in 2014. It disbursed Rp 1.34 trillion worth of loans to construction projects and only 1.1 percent of them experienced problems.

'€œWe will be on the lookout for oil and gas and commodity sectors as well because their prices have not bounced back,'€ she said.