Central Bank set to ease credit limit for infrastructure projects<\/p>\n
Urip Hudiono, The Jakarta Post\/Jakarta<\/p>\n
To support the government's plan of reviving the economy through
\nmassive infrastructure projects, the central bank will issue a
\nnew set of banking rulings for the purposes, including an easing
\nof the legal lending limit requirements.<\/p>\n
BI governor Burhanuddin Abdullah said on Friday that the new
\ncredit limit regulation will relax the maximum allowable lending
\nfor banks for one particular project or sector; up to 30 percent
\nof its capital, from the current 20 percent.<\/p>\n
\"Such leniency will be given to those banks -- particularly
\nstate-owned ones -- that channel their credit into infrastructure
\ndevelopment projects, or any other government project intended to
\nspur the economy,\" he said.<\/p>\n
\"The credit limit for such banks will be raised to between 25
\npercent and 30 percent, depending on their classification as
\nspecified later in the regulations.\"<\/p>\n
The regulations would serve only as a stimulant and not as a
\nway to burden banks to participate in the infrastructure
\nprojects.<\/p>\n
Burhanuddin said he was hopeful that the new regulations would
\nbe able to increase bank lending by more than Rp 100 trillion
\n(US$11 billion) this year.<\/p>\n
Indonesia is preparing itself for massive infrastructure
\nprojects over the next five years in order to boost average
\neconomic growth to at least 6 percent.<\/p>\n
Many large banks such Bank Mandiri and Bank Negara Indonesia
\n(BNI), have expressed their interest in the projects. BNI, for
\ninstance, has said that it plans to allocate Rp 23 trillion
\n(US$2.5 billion) for infrastructure project loans over the next
\nfive years.<\/p>\n
Elsewhere, Burhanuddin said that the new regulation package,
\nto be issued later this month, will also provide a more flexible
\ncredit assessment procedure, but without putting protection
\nmeasures for customers at risk.<\/p>\n
Neither would the slackening of credit limits jeopardize the
\nhard-earned stability of the banking sector, as the central bank
\nwould accordingly tighten supervisory mechanisms on each bank's
\ncredit disbursement procedures.<\/p>\n
Burhanuddin cited a number of measures that are already in
\nplace to gauge a bank's health, in terms of financial and lending
\nperformance.<\/p>\n
\"There is a strict requirement in terms of minimum capital and
\nbad credits, as well as others, all designed to preserve the
\nlevel of credits at a healthy level,\" he added.<\/p>\n
The central bank has set a minimum capital adequacy ratio
\n(CAR) of 8 percent and a maximum non-performing loans (NPL) ratio
\nof 5 percent of total credit. CAR measures a bank's capital with
\nits risk-weighted assets including loans, while loans are
\nclassified as non-performing after interest payments are 90 days
\noverdue.<\/p>\n
During the 1997-1998 Asian financial crisis, Indonesia's
\neconomy was hit hard by the collapse of many banks that had
\nfailed to implement prudent banking practices in their
\noperations.<\/p>\n
Seven years after the crisis, the nation's banking sector has
\nimproved and become relatively more prudent compared to the pre-
\ncrisis situation.<\/p>\n
Still, flaws remain in the industry, attributable to a
\ncombination of bad banking practices and weak supervision on the
\npart of the central bank.<\/p>\n
Over the past two years alone, the country has seen at least
\nthree bank closures -- the latest being Bank Global, which was
\nclosed down on Thursday.<\/p>",
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"sponsor": "Okusi Associates",
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