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)