Banking industry urged to reduce credit expansion

Banking industry urged to reduce credit expansion

JAKARTA (JP): Governor of Bank Indonesia J. Soedradjad
Djiwandono yesterday urged the banking industry to reduce loan
approvals to avoid being trapped with huge non-performing loans.

"To date, this year's credit expansion has come to a perilous
level, although it is still lower than that of 1989 and 1990. I
expect that next year the industry will be more careful in
dealing with loans," Soedradjad said in a one-day seminar on 1995
business prospects yesterday.

He said the banking industry should be wary of the growing
demand for loans in the real estate sector, which has expanded at
an unchecked pace.

A report said recently that loans for the property business
reached some Rp 28.2 trillion (US$12.8 billion) as of October,
which accounts for 15 percent of the country's total loans.
Around 70 percent of the property loans was for the development
of apartments and middle-class houses.

Bank Indonesia, the central bank, recently reported that
commercial banks' total outstanding loans as of September reached
Rp 174.28 trillion, 18 percent higher than Rp 147.34 trillion as
of last December.

Soedradjad said the high expansion in property loans usually
adds risks to the market and credit liquidity due to the
business' speculative nature, in addition to its sensitiveness to
any changes of the macro-economy.

To anticipate the increase in non-performing loans, the
monetary authority has been committed to not introducing any
drastic policies which may disrupt the banking industry, he said.

He pledged that the central bank, in curbing credit expansion,
will control money reserves to keep the economic growth on a good
track.

"Policies on realistic conversion of rupiah and the control of
interest rates of inter-bank loans will also be our priorities in
1995," he said. (fhp)