Bank Mandiri president says difficult boost lending

The Jakarta Post, Jakarta

The president of giant state-owned Bank Mandiri, E.C.W. Neloe, said on Wednesday that it would be difficult for the country's banking sector to boost lending by between 20 percent and 22 percent next year as demanded by the central bank.

"It will be tough for the banks," he told reporters on the sidelines of a ceremony.

He explained that the country's banks, which had just started to recover from the devastating impact of the late 1990s financial crisis, had to be extra careful with their money, particularly as the corporate sector was still associated with high risk and was mired in a slow restructuring process.

Bank Indonesia governor Burhanuddin Abdullah said during a dialogue with the Indonesian Chamber of Commerce and Industry (Kadin) earlier this week that bank lending must grow by between 20 percent and 22 percent next year to allow the country to notch up economic growth of between 4 percent and 4.5 percent.

The central bank has been aggressively cutting its benchmark interest rate over the past year in the hope of encouraging the banks to also significantly reduce their lending rates to make loans more affordable to the corporate sector.

But lending rates have remained stubbornly high at around 17- 18 percent, compared to 19 percent earlier in the year. The central bank benchmark interest now stands at less than 9 percent compared to more than 13 percent at the beginning of this year.

According to central bank data, bank lending during the first semester of this year only grew by around 7 percent, amounting to around Rp 23.8 trillion in fresh loans, increasing total outstanding bank loans to Rp 434.1 trillion.

Assuming that lending growth in the second half will be about the same as in the first half, outstanding loans by the end of this year will reach Rp 458 trillion.

This means that lending growth of at least 20 percent would require fresh loans amounting to around Rp 91 trillion.

Burhanuddin said that the current stability in macroeconomic indicators should provide a favorable climate for banks to boost lending and for the corporate sector to increase investment.

But experts have said that the better macroeconomic picture has not translated into higher investment.

Some analysts said that even the corporate sector was not yet ready to make new investment due to lingering problems in other areas, such as legal certainty, labor relations and volatility in overseas export markets.

Indeed, around Rp 80 trillion worth of available bank loans have not been taken up by the corporate sector, according to recent data from the central bank.

The government and the central bank have been keen to push investment in order to spur the economy to higher growth levels than the average growth rate of 3-4 percent posted over the past couple of years. Such growth rates are far from sufficient to create enough jobs for the country's some 40 million unemployed. Experts say that the economy has to grow at between 6 percent and 7 percent to generate even make a dent in the unemployment figures.