BI Governor Perry Warjiyo announced on Thursday that the central bank would relax the regulations to allow zero percent down payments for both mortgages and automotive loans to boost demand in both sectors, which have been battered by the COVID-19-induced downturn. 

The central bank has relaxed the loan-to-value (LTV) and financing-to-value (FTV) ratios, the ratios between the loan and the asset value, to 100 percent, from the previous 85 to 95 percent depending on property type. The relaxed terms are to be in effect from March to December this year.

The LTV is an often-used ratio in mortgage lending to determine the portion of down payment required and whether a lender will extend credit to a borrower.

Bank Permata economist Josua Pardede said the combination of policies from the government and the central bank was still deemed necessary given the decline in consumer spending on durable goods like housing and transportation.

Read also: Bank Indonesia trims rate to record low to spur economic recovery

However, whether banks accept zero-percent down payments for mortgages and automotive loans may depend on their appetite, liquidity and risk assessment.

BI stated that only eligible banks with nonperforming loan (NPL) and nonperforming financing (NPF) ratios of less than 5 percent could apply the zero-percent down payment policy.

“Risk management varies from one bank to another,” Josua told the The Jakarta Post in a phone interview on Friday.

“It may not be widespread. If there is no appetite for mortgages or vehicle loans, the down payment may not be zero percent.” Indonesia is aiming for economic recovery this year, after entering an economic recession last year for the first time since 1998, with the gross domestic product (GDP) dropping by 2.07 percent in 2020 as most economic components fell.

Household spending fell 2.63 percent last year, partly because of a fall in automotive sales.

Sales of passenger cars and motorcycles were down by 50.49 percent and 43.54 percent, respectively, in 2020, Statistics Indonesia (BPS) data show.

BI’s monetary policy to allow automotive loans without down payment follows the government’s move to cut the luxury goods sales tax on sedans and two-wheel drive cars with engines of 1,500 cc or below. The luxury sales tax cut will apply for a three-month period starting from March 1.

The policy also came as BI cut its benchmark interest rate by 25 basis points on Thursday, bringing it down to 3.5 percent, the lowest level since the rate was introduced in 2016.

Read also: Inflation slows as COVID-19 restrictions reduce demand

Bahana Sekuritas economist Satria Sambijantoro expressed doubt that the central bank’s policy to allow lower down payments for mortgages would be in line with consumer needs.

“Consumers have concerns about large instalments and higher interest rates,” Satria told the Post in a phone interview, adding that they might have similar concerns regarding vehicle loans because of reduced mobility during the pandemic.

In the housing sector, the central bank survey revealed that annual growth in mortgages for both houses and apartments was recorded at 3.42 percent in the October-December period last year, less than half of the growth rate in the same period in 2019.

The central bank also reported a 20.59 percent yoy dip in the total sales of all house types in the fourth quarter of 2020.

The country’s largest private lender, Bank Central Asia (BCA), welcomed the central bank’s latest move as it was aimed at spurring mortgage disbursement in the property sector, said Hera Haryn, the executive vice president of corporate communications.

“We hope the consumer business will recover soon in line with various policies from the government, regulators and banking authorities, as well as the vaccination program the government is currently rolling out,” Hera told the Post via text message.

BCA booked a rise of 0.5 percentage points to 1.8 percent in its NPL ratio last year. But this stands well below the industrywide average at 3.18 percent and the 5 percent upper limit outlined by the Financial Services Authority (OJK).

The bank’s total loan disbursement dropped 2.5 percent to Rp Rp 588.7 trillion (US$41.86 billion) last year, driven by declines in the small business and consumer segments.

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