The central bank has warned of a rising risk from consumer loans amid the recent rise in total bank lending, which has already exceeded its 22 percent growth target for this year and is expected to add another 25 percent next year.
Bank Indonesia director for banking research and regulations Halim Alamsyah said Monday more consumer loans could face default if household income weakens, with banks themselves facing regulatory constraints to resolve the potential bad debts.
"We've noticed an increase in the non-performing loan (NPL) level of consumer loans, particularly from credit cards," Halim said at a financial stability discussion.
"And banks cannot simply write off these bad debts, as this has regulatory implications regarding their financial reporting and taxation."
Halim did not elaborate on the current NPL level in the consumer sector, but according to data from Bank Indonesia, as of the end of September it reached Rp 8.7 trillion (US$950 million) -- or 3.2 percent of total consumer loans. In the same period last year, it amounted to Rp 6.9 trillion, or 3.1 percent of consumer loans.
The NPL levels of both working capital and investment loans have by comparison decreased to Rp 24 trillion (5 percent) and Rp 14.5 trillion (8 percent), respectively.
Consumer loans have until 2007's third quarter grown by 21 percent to Rp 265.7 trillion, working capital loans by 23 percent to Rp 475.8 trillion and investment loans by 20 percent to Rp 172.5 trillion.
Credit card transactions as of the end of August amounted to Rp 6.39 trillion.
In total, bank lending as of September has grown by 22 percent to Rp 913.9 trillion, to register an NPL level of Rp 47.2 trillion (5.2 percent) for the industry.
The central bank earlier noted possible inflationary pressure ahead due to the recent surge in global oil prices and other commodities that Indonesia imports, which could prompt BI to maintain a tight rate policy.
This could in turn erode the public's purchasing power, including people's ability to finance the payments of existing consumer loans.
Halim said BI would continue to assess its concerns regarding consumer loans, particularly from credit cards, noting on the bright side that banks have so far continued to adhere to risk management guidelines when disbursing loans.
BI will also assess related banking regulations to facilitate lenders in managing and preventing bad debts in the consumer segment.
The central bank earlier this year raised the minimum monthly payment for credit cards to 10 percent from 5 percent, to maintain credit discipline.
Halim further expected an improvement in Indonesia's economy to boost demand for loans from the real sector, helping create a healthier and more productive lending structure for the banking industry.
"There has been a recent increase in working capital and investment loans, apart from consumer loans," he said.
"Next year, we estimate total lending to grow even faster again by between 24 and 25 percent. Of course, all this requires more efforts to maintain the health of the loans."