Banks must take human approach to home loans

JAKARTA (JP): Local banks must use a "human approach" when dealing with their home loan recipients who can no longer afford to make their monthly payments, banking observer Enny Hardjanto said on Monday.

"Banks must soften their stance because they are dealing with one of people's basic needs," she said.

"They must not enforce the existing regulations rigidly, but should instead apply the law of conscience," Enny told a discussion forum on housing loans.

Enny said many home loan recipients were having problems meeting their monthly payments because the loans' interest rates had soared to between 27 percent and 35 percent per year from about 19 percent since the government imposed tight money policy to strengthen the rupiah in the middle of last year.

Reports have said that at least 23,875 borrowers of the state- owned Bank Tabungan Negara's (BTN) home loans or 2.05 percent of the bank's 1.16 million debtors had problems making their payments.

Most of the bank's home loans were extended to financially weak borrowers at fixed interest rates, which were partly covered by government subsidies.

The number of home loan defaulters with private banks is far higher because unlike BTN, private banks float their interest rates to current levels.

According to a study conducted by the Public Interest Research and Advocacy Center (PIRAC), 80 percent of the banks it surveyed imposed floating interest rates on housing loans with the remaining 20 percent imposing fixed rates.

Enny said the banks must take a case-by-case approach to resolve the bad credit problems based on the ability of each borrower to pay.

The loan payments should not total more than a third of the borrowers' monthly incomes because the remaining two-thirds should be reserved for their daily needs, she said.

Since the crisis struck Indonesia last July, many people's incomes have stayed the same while their daily needs have increased in price because of the high inflation.

A significant proportion of people now have lower incomes because many employers have cut salaries to reduce costs and many more people have lost their jobs, she said.

This had caused the monthly loan payments to swell to about two-thirds of the borrowers' income instead of decreasing, she said.

"We cannot use the same approach for all these cases," Enny said.

She cited as an example, that a customer who had been paying for eight years and now could no longer make the payments must be exempted, even though he still had seven more years to pay.

"If a person loses his job and can't make the payments, it would not be fair for the bank to reposes his home after he's been a good customer for eight years," she said.

She said the banks must adjust their loans' interest rates to suit debtors' individual situations.

They could also give discounts for customers who paid the rest of their loans in full, so that they could at least improve their cash flow, she said.

Another alternative to resolve the home loan repayment problem would be for the banks to extend the period of their loan terms.

The banks could extend the credit period to 20 years from the previously agreed 15 years and make the borrowers pay the balance of the interest rates increase at the end of the period.

Enny said banks which gave housing credits had been operating with negative spread because they offered high deposit interest rates of about 50 percent while they only charged 27 percent to 35 percent for their housing loans.

Lawyer Luhut Pangaribuan said yesterday home loan recipients must organize themselves to strengthen their negotiating position with the banks regarding their inflated loans.

He said borrowers could make bilateral negotiations, but if that failed, they could file a class-action suit against the creditors and declare a force majeur.

Customers could use the argument that their inability to pay was caused by the government's faulty measures, such as allowing high foreign debts and imposing high interest rates, Luhut said.

"Creditors will unlikely stay adamant, because they are outnumbered by the borrowers," he said.

"It will cost much money and take a long time to settle the disputes legally, and they (the banks) would likely lose the case."

Monday's forum on the "Roots and solving the problems on home loans" was conducted by PIRAC. It was also attended by the group's researchers Yusuf Shofie and Zaim Saidi, and lawyer Abdulhakim Garuda Nusantara. (das)