Bank loans still hard to come by for real sector due to uncertainties<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
Hefty cuts in Bank Indonesia's benchmark interest rate have
\napparently failed to persuade banks to boost lending to the
\nanemic real sector, in what analysts believe to be the result of
\na poor investment climate here.<\/p>\n
Analysts Ryan Kiryanto and Edwin Syahruzad said that the
\nlowering of central bank interest rates should have spurred
\nlending activity as loans became cheaper, but ultimately it was a
\ngood investment climate that would encourage banks to lend more
\nmoney.<\/p>\n
\"A lower interest rate environment will definitely help, but
\nother stimuli are needed too. In the end, it'll all come down to
\nwhat the investment climate looks like here,\" Edwin, of the
\nDanareksa Research Institute, told The Jakarta Post last week.<\/p>\n
Reviving the real sector by pushing banks to channel more
\nloans is crucial to help push economic growth and accelerate the
\ncountry's economic recovery.<\/p>\n
For this year, the government has targeted 4 percent economic
\ngrowth, although some, including the International Monetary Fund
\nand National Development Planning Board (Bappenas) have recently
\nrevised their growth forecasts lower, to 3 percent to 3.5
\npercent.<\/p>\n
Ryan said another reason for the slower lending activity was
\nbecause there was a time lag before bank lending rates could be
\nadjusted to the lower Bank Indonesia rate.<\/p>\n
\"When Bank Indonesia lowers its interest rate, a bank needs
\ntwo or three months before it finally lowers lending rates, as it
\nhas to lower its time-deposit rates first,\" Ryan told the Post.<\/p>\n
Since January of this year Bank Indonesia had been cutting its
\nbenchmark interest rate in the hope of giving leeway to the
\nbanking sector to improve its intermediary role by expanding more
\nloans. Another objective is to help ease the burden on the
\ngovernment in covering the interest repayments on government
\nbonds issued in the late 1990s to bailed-out banks.<\/p>\n
The relatively loose monetary policy has been made possible
\namid lower inflation and a stronger exchange rate of the rupiah
\nagainst the U.S. dollar.<\/p>\n
Although Bank Indonesia data shows that bank loans increased
\nduring the first half of this year, they still failed to live up
\nto expectations.<\/p>\n
New credit approvals throughout the first semester reached
\naround Rp 22.5 trillion of a total Rp 346.9 trillion in
\noutstanding loans. Of new loans, 25 percent were channeled to the
\ntrading sector, while the trading services and
\nindustrial\/manufacturing sectors took 20 percent and 19 percent
\nrespectively of the loans.<\/p>\n
During the same period, the benchmark interest rate on Bank
\nIndonesia one-month SBI promissory notes dropped from 17.50
\npercent in early January to 15.06 percent in June. Currently, the
\nrate is hovering at 14.87 percent.<\/p>\n
In comparison, lending rate is currently set at 19 percent to
\n22 percent, while time-deposit rate is hovering at 13 percent to
\n14.5 percent.<\/p>\n
New loan approvals in the fourth quarter of 2001 stood at Rp
\n20 trillion, when the central bank's interest rates were still
\nhovering at around 18 percent.<\/p>\n
According to Ryan and Edwin, such a small amount of new loans
\nshould explain why in the first semester there was a huge drop in
\ndomestic investment approvals, declining by almost 70 percent
\ncompared with the same period last year.<\/p>\n
Data from the Investment Coordinating Board (BKPM) shows that
\ndomestic investment approvals for the first six months of the
\nyear reached only about Rp 11 trillion, compared with nearly Rp
\n40 trillion posted last year in the same period.<\/p>\n
Legal uncertainties, among other things, are widely regarded
\nto have scared investors away from the country. The domestic
\npolitical situation, labor conflicts and development in the
\nglobal economy also played a part in damaging the investment
\nclimate.<\/p>\n
President Megawati Soekarnoputri even admitted in her speech
\nbefore lawmakers last week that the country's legal reforms had
\nbeen slow, thus creating uncertainty among investors, both
\nforeign and domestic.<\/p>\n
The relatively risky investment climate here has caused banks,
\nbadly hit by the 1997 financial crisis, to be extra careful in
\nchanneling their money, thus resulting in the slow growth of
\nlending.<\/p>\n
Also contributing to the banking sector's reluctance to
\nprovide more lending was its dependence on the lucrative revenues
\nfrom recapitalization (recap) bonds, which currently dominate
\nbanks' productive assets.<\/p>\n
Loans made up only 34.7 percent of the banking industry's
\nproductive assets, with 44 percent consisting of recap bonds.<\/p>\n
So far, of the total interest revenue enjoyed by the banking
\nindustry, almost 45 percent has come from the interest on recap
\nbonds.<\/p>\n
Analysts also said that the slow lending activity in the first
\nhalf should put Bank Indonesia's target, set earlier this year,
\nfor bank loans to grow by Rp 62.12 trillion this year, at risk.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bank-loans-still-hard-to-come-by-for-real-sector-due-to-uncertainties-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}