Banks focus on consumer loans as SBI rate declines

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.