No quick fix to sluggish bank lending: Experts<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
Experts warned the central bank against seeking an instant
\nsolution to the slow growth in bank loans to the corporate
\nsector, as aggressive lending without proper risk management
\nwould cause another financial crisis.<\/p>\n
\"Indeed, we need to see speedier growth in corporate lending,
\nbut accelerating it without referring to prudent banking
\nprinciples will be a mistake,\" Standard Chartered economist Fauzi
\nIkhsan said on Monday.<\/p>\n
The lack of a sound credit assessment mechanism was among the
\nreasons behind the banking crisis in the late 1990s.<\/p>\n
Bank Indonesia, in a bid to accelerate the country's economic
\ngrowth, has repeatedly urged domestic banks to increase lending
\nto the corporate sector instead of focusing merely on consumer
\nloans.<\/p>\n
Over the past two years, the central bank has been cutting
\ndown its benchmark interest rate aggressively, hoping the move
\nwould encourage banks to increase the provision of cheaper
\ncorporate loans. Banks, however, have generally been reluctant to
\nboost lending to the sector, as is reflected in the relatively
\nlow loan to deposit rate of 40 percent as of November 2003.<\/p>\n
Banks prefer to channel their money into the consumer sector
\nor retail sector, as the corporate sector is still considered
\nrisky.<\/p>\n
Fauzi said the answer was to find ways to resolve the problem
\non both the supply and demand sides.<\/p>\n
\"At present, banks enjoy a huge excess of liquidity, and while
\nthe risk in the corporate sector remains high, they have no
\nchoice but to pour the lending into other sectors ... in this
\ncase, in consumer lendings.\"<\/p>\n
The banking sector is estimated to have an excess liquidity of
\nbetween Rp 25 trillion ($2.94 billion) and Rp 30 trillion daily.<\/p>\n
Fauzi's remarks echoed a similar statement issued recently by
\nthe International Monetary Fund (IMF).<\/p>\n
\"I think one needs to make sure one doesn't encourage a sort
\nof a quick solution to this, by encouraging banks to just put
\nmoney on the private sector. The important thing is to allow them
\nto do it properly and prudently,\" said visiting IMF senior Asia
\nPacific advisor Daniel Citrin last week.<\/p>\n
Sluggish corporate lending is occurring as consumer loans,
\nsuch as housing, automotive, electronics and credit card loans,
\nhave been rising rapidly.<\/p>\n
Ryan Kiryanto, banking analyst at BNI, said that, without
\nfull-blown efforts to fix the basic problems in the corporate
\nsector, such as high risk, low demand and low credit absorption
\ncapacity, growth in corporate loans would remain insignificant.<\/p>\n
In regards the current trend of banks pouring loans into the
\nconsumer sector, Fauzi and Ryan concurred that it was tolerable
\nand had yet to pose a danger to the economy, at least in the
\nshort to medium term.<\/p>\n
\"Percentage-wise, the size of those (consumer) loans are
\nrelatively small, far below those for corporations.<\/p>\n
\"Moreover, unlike before the crisis, nowadays we see that
\nconsumption credit is more diversified, which also means that the
\nrisks are diversified,\" Ryan said, adding that almost all
\nconsumer loans prior to the crisis went to the property sector.<\/p>\n
Fauzi said this lending trend would become a real problem if
\nthe economy failed to resolve the huge unemployment problem in
\nthe long run, as without jobs, households would default on their
\nloans.<\/p>\n
\"If that happens, for a country with 70 percent of its GDP
\nmade up by private consumption, that could spell trouble,\" he
\nsaid, referring to gross domestic product.<\/p>",
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