Ministry wants more support from banks

Aditya Suharmoko , The Jakarta Post , Jakarta | Wed, 02/24/2010 10:41 AM | Business

The Industry Ministry wants more support from banks to boost lending in support of growth in the real sector, Industry Minister Mohamad Suleman Hidayat said as he planned to meet the central bank and bankers for talks on Wednesday.

“I want banking support to industries to increase. In the 2008-2009 period bank lending to all sectors of industry increased between 18 percent and 19 percent. This had dropped from five or six years ago, when lending growth had reached 20 percent,” Hidayat said speaking to representatives of the foods and beverages industry in his office Monday night.

He said he would arrange a meeting with Bank Indonesia (BI) and bankers on Wednesday to discuss the issue. “I will make a presentation that in the industry sectors we also have programs [to promote lending],” he said, as reported by detik.com.

As of the end of last year the banks channeled Rp 1,437.93 trillion (US$155.3 billion) in outstanding loans to industry and companies, representing a 10 percent increase on the Rp 1,307.69 trillion of lending achieved in 2008, as shown by BI data.

Significant amounts of the outstanding loans were channeled to the trade, restaurants and hotels sector at Rp 301.38 trillion and the manufacturing sector at Rp 247.44 trillion.

Both had the highest non-performing loans (NPLs) of all sectors in 2009. The manufacturing sector had an average rate of 5 percent of NPLs with bad loans of Rp 12.41 trillion while the trade, restaurants and hotels sector experienced a 4 percent rate of NPLs with bad loans of Rp 12.25 trillion.

Banks also imposed high lending rates because of higher business risks and the high cost of funds.

Last year average lending rates hovered above 12 percent, according to BI data. Consumer loans in rupiah averaged interest rates of 15.81 percent, working capital loans were at 13.27 percent and investment loans were at 12.55 percent, respectively.

Net interest income — the spread between lending and deposit rates — of banks in 2009 was 5.56 percent, almost unchanged from the 5.66 percent in 2008. In contrast, BI said banks in some neighboring countries had a net interest income of only 3 percent.

BNI chief economist A. Tony Prasetiantono said it would not be easy to cut lending rates this year due to several determinant factors.

“In 2010 there is a large potential for a spike in inflation. I assume inflation will be more than 5
percent, while in 2009 it was only 2.78 percent. BI won’t likely reduce its key [interest] rate again this year,” he said.

“The banking industry also faces many structural issues, [for example it is] too dependant on interest income, while ideally it is shifting to fee-based income,” he added.

Tony also said banks should be more efficient in cutting costs, but this efficiency would lead to replacement of employees by technology, reducing staff levels and requiring new banking technology. This would create other problems. “These structural problems could not be solved quickly,” he said.

Acting BI Governor Darmin Nasution said BI plans to introduce new requirements concerning banks’ minimum reserve ratios would be linked to banks’ loan-to-deposit ratios. Banks that lend more will only be required to deposit relatively lower reserve funds with BI, he said, whereas those that lend less would need to make bigger deposits.

BI estimates lending will grow by between 17 percent and 20 percent this year as confidence in the economy picks up.

The economy grew by 4.5 percent last year, according to the Central Statistics Agency (BPS).
The government expects the economy to expand by about 5.5 percent this year.