Banks will remain reluctant to lend to the labor-intensive manufacturing sector, particularly the textile industry, due to a lack of competitiveness, a latest survey by Bank Indonesia (BI) has revealed.
Banks still consider foreign demand for Indonesian textiles to be weak, while domestic local textile products are facing stiff competition with foreign products, which will restrain the banks from making loans in the second quarter this year, the survey said.
The textile industry is more vulnerable to the implementation of the free trade agreement between ASEAN countries and China which introduced zero tariffs for many products as of January 1st, it said.
The survey sampled 43 commercial banks with headquarters in Jakarta, whose credit market represents 80 percent of total bank loans.
The government wants the manufacturing sector to expand 7 percent this year to absorb more labor, Coordinating Minister for the Economy Hatta Rajasa said over the weekend.
Last year the manufacturing sector grew by only 2.1 percent, said the Central Statistics Agency (BPS).
In August 2009 the rate of open unemployment stood at 7.87 percent of Indonesia’s 114 million workers, the BPS said. The figure declined from 8.39 percent in August 2008.
The government will need support from banks to support real sector growth to reduce poverty, affecting 32.53 million people in March 2009, or 14.15 percent of about 230 million Indonesians, analysts said.
The National Development Planning Agency says the government plans to reduce the poverty rate to between 8 and 10 percent by 2014 by accelerating infrastructure projects to spur real sector growth, thereby absorbing more labor.
Overall, banks are predicted to lend more in the second quarter this year, the survey said.
BI said loans until the end of March grew by 11 percent from a year earlier. Non-performing loans (NPL) stayed at below 5 percent, which is the maximum upper limit for NPLs as a proportion of total loan portfolios under BI banking guidelines.
BI estimates loans should expand between 17 and 20 percent this year, despite bankers being optimistic that loans could be increased by above 20 percent.
Loans are predicted to expand as the banks cut lending rates as a result of the lowering of the cost of funds, the survey said.
The rate of banks’ cost of funds is predicted to reach lower to 6.02 percent, it said.
Therefore, the lending rate for investment loans is predicted to drop 0.15 percent from the previous
quarter to 13.37 percent; and for working capital loans down to 13.04 percent, while the lending rate for consumer loans is expected to fall to 16.18 percent.
BI has maintained its benchmark interest rate for the eighth straight month at 6.5 percent to ease the borrowing costs of banks and to spur economic growth.
The Industry Ministry and the State-Owned Enterprises Ministry have held talks with BI to encourage that lending rates should be pushed down further, starting with the state banks.