Banks focus on consumer loans as SBI rate declines

A'an Suryana, The Jakarta Post, Jakarta

Banks have become increasingly aggressive in channeling their money into consumer loans as profitability from investing in Bank Indonesia SBI promissory notes has become thinner due to the declining trend in the interest rate, and lending to the corporate sector is still considered too risky.

"The excessive liquidity must not be left idle, therefore, the banking sector has started to channel part of its money into consumer loans," Soeswidijono, group head of corporate communications at Bank Mandiri, told The Jakarta Post.

Bank Mandiri, Standard Chartered Bank (SCB), ABN Amro Bank and many other banks have waged media campaigns recently, enticing the public to obtain the available credit from the banks.

The interest rate on the one-month SBI notes has consistently declined since early this year, dropping to 15.16 percent as of last Wednesday, from over 18 percent last year.

This has made investing in SBIs, the main investment target for many banks during the past couple of years due to its high interest rates, become less attractive.

Thus banks now have excess funds as they are reluctant to channel money into the high-risk real sector, that owes a massive amount of bad debts to the banks.

This can be seen from the relatively low loan to deposit ratio, which at the end of this quarter was at an average rate of 40 percent.

The market potential for consumer loans business in this country is also promising.

"The penetration of such credit here is very low, therefore we see great potential to develop this business and become a market leader," said Susilo Tedjaputra, senior product manager for personal loans at SCB.

SCB is one of the banks that have recently promoted its retail credit facilities.

The product has been offered to the public since 1999, and some Rp 1 trillion in funds has been disbursed to consumers, contributing around 60 percent to 70 percent of total loan applications.

The loan could be used for personal matters such as investing in education, wedding parties and other purposes.

People in the minimum monthly income bracket of Rp 2.5 million (US$287) in Jakarta and Rp 2 million outside Jakarta could apply for such a loan, in which they could obtain a loan of up to five times their salary.

The loans must be paid within one to five years.

Meanwhile, Bank Mandiri launched credit without collateral early this year, which is called Kredit Mitrakarya. The scheme provides multipurpose credit for employees, notably in the private sector, from Rp 10 million to Rp 25 million, with a credit return period of up to five years.

The interest rate for consumer loans is quite high, leveling at an average of 19 percent.

However, the response is not bad. SCB, for instance, receives some 7,000 to 8,000 applications every month.

"The benefit of the scheme is that we can get a reasonable rate of return, and the loss rate is still manageable and within the lower range," said Susilo.