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Banks race for online lending, warned about nonperforming loans
Commercial banks are rapidly sinking their teeth into online lending platforms to compete with financial technology (fintech) startups that have attracted many customers thanks to their faster and more convenient services
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span>Commercial banks are rapidly sinking their teeth into online lending platforms to compete with financial technology (fintech) startups that have attracted many customers thanks to their faster and more convenient services.
Singapore-based lender PT Bank DBS Indonesia, for instance, launched earlier this week an online banking platform to offer non-collateral loans with affordable interest rates to its customers in Indonesia.
DBS Indonesia consumer banking group head Wawan Salum said that people could get their initial loan approval in “less than a minute” after they submitted their request, followed by a biometric clearance and customer e-ID registration before receiving their cash.
“We aim to ease our banking system so that our clients can go on with their daily activities without fussing about their financing needs,” he said in the feature’s public launch.
Wawan estimated that with interest rates of between 1.59 and 2.49 percent per month, the online lending platform would account for 20 percent of the bank’s total non-collateral loans this year. The bank’s total loans are projected to increase by 20 percent loan by the end of 2019.
Last February, Bank Rakyat Indonesia Agroniaga (BRI Agro) also launched an online lending app dubbed Pinjaman Tenang or PINANG, which means easy borrowing.
BRI Agro president director Agus Noorsanto told Kontan in a recent interview that the online lending targeted blue-collar workers in factories and industrial zones who have payroll accounts with BRI Agro or its parent company Bank Rakyat Indonesia (BRI).
“We believe that employee engagement will gradually increase through PINANG, while helping them to fulfill urgent needs,” Agus said.
Through the online lending app, which offers an interest rate of 1.24 percent a year, the bank expects to disburse about Rp 375 billion (US$25.8 million) in loans to 270,000 customers this year.
Apart from the two banks, state-owned lender Bank Negara Indonesia (BNI) and Malaysian private lender CIMB Niaga, the Indonesian unit of the Malaysia-based CIMB, are also considering offering an online lending app, but had yet to disclose further details as of Tuesday.
Online lending has gained popularity in Indonesia amid the rapid growth of fintech startups, which provide online lending. The Financial Services Authority (OJK) recorded 113 online lending platforms in Indonesia as of May 15. In 2018, the loan disbursement through online lending reached a total of Rp 20 trillion.
Among other reasons for the growth experts have attributed the increasing need of individuals as well as micro, small and medium enterprises (MSMEs) for easier access to loans.
On the other hand, critics have condemned such platforms for their high interest rates, which often lead borrowers into trouble.
The country’s growing online lending sector has become one of the most complained about business sectors partly because of high interest rates and aggressive debt-collection practices, according to the Indonesian Consumers Foundation (YLKI).
As of last January, the Jakarta Legal Aid Institute (LBH Jakarta) had received 979 complaints from debtors in Jakarta alone.
Commercial banks could fall into the same trap, Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira Adhinegara said. The non-collateral loans provided by the online lending platforms also have a higher risk of default.
According to data provided by the OJK, the nonperforming loan (NPL) ratio for peer-to-peer lending has increased sharply to 3.18 percent from only 0.6 percent last year
Furthermore, consumer loan growth has been stagnant, he added. According to the central bank’s report, the loan segment grew only by 8.9 percent as of last March, a slowdown from 11.4 percent in 2018.
But both BRI Agro and DBS bank executives denied the possibility of increased NPLs, claiming that their system was both secure and adept enough to be selective in choosing their borrowers.
“Still, banks have to be cautious in offering their non-collateral loans since they can influence their clients’ buying power amid the challenging condition of the economy,” Bhima told The Jakarta Post.
