Banks must take human approach to home loans

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)