Banks to allocate Rp 60.4t for MSME this year

Banks to allocate Rp 60.4t for MSME this year

The Jakarta Post, Jakarta

The high demand of loans from micro, small and medium enterprises
(MSME) last year -- supported by sound credit performance -- has
prompted the banking industry to increase its lending targets for
the businesses by 60 percent this year.

Bank Indonesia Governor Burhanuddin Abdullah said local banks
were planning to lend Rp 60.4 trillion (US$6.46 billion) to MSME
this year, up from last year's target of Rp 38.5 trillion.

"The increase signals the revival of the small businesses.
Banks are confident and optimistic over the huge lending
potential, which can help the expansion of the banking sector as
well," he said in a press statement distributed on Friday.

This year's lending allocation for small business accounts for
some 60 percent of the total lending available from local banks,
which is estimated to reach Rp 106 trillion. Some 40 percent of
the total lending will be from state banks.

Burhanuddin was optimistic that the loan demand from the
sector would exceed the banks' lending targets as it did last
year. Despite the encouraging announcement, many small business
owners still have limited access to information and capital.

Last year, the banks lent Rp 72 trillion to the MSME sector,
up by 87 percent from the initial target of Rp 38.5 trillion. In
2003, banks disbursed just 63.8 percent of their Rp 42.3 trillion
lending target for the sector.

"The MSME sector has limited access to capital markets and
resources. To improve that, there should be a comprehensive
regulation that can bring them closer to capital and to market
demand," said Burhanuddin.

He also underscored the need for the small businesses to
improve their management of their loans to avoid default and
maintain the confidence of the banking sector.

One of the main reasons for banks wanting to increase their
loan portfolios to the sector last year was due to the declining
number of non-performing loans (NPL) in the sector in the recent
years.

According to the central bank, last year's NPL figure among
MSME stood at 3.44 percent, down 0.86 percent from the previous
year of 4.3 percent. Both figures are lower than the banking
industry's average NPL rate of 4.5 percent and 6.7 percent in
2004 and 2003, respectively.

Loans are considered non-performing if the interest payments
on them are more than three months overdue, and the NPL is
commonly used to gauge a bank's financial health. BI requires all
banks to maintain a NPL figure of below 5 percent.