Banks shift to consumer credit

Banks shift to consumer credit

The Jakarta Post, Jakarta

Banks will concentrate more of their efforts on consumer lending,
due to the huge growth potential and the increased scrutiny of
corporate loans, according to top bankers.

"For the next three years, consumer lending will continue to
be the main driver of bank loans," said Bank Permata director
Elvyn Masassya during a seminar here.

Permata is the country's seventh largest lender in terms of
volume.

During the next three years, he added, motorcycle and home
mortgages were estimated to grow by 35 percent annually, while
credit card and car loans would rise by between 20 percent and 25
percent, respectively.

Bank Rakyat Indonesia (BRI), the fourth largest, shared the
same opinion, with vice president Wayan Alit Antara saying that
consumer loans would continue to be the "engine of growth" for
the foreseeable future.

Indonesia's relatively low amount of individual debt, which
collectively stood at 9.5 percent of gross domestic product
(GDP), leaves a lot of room for growth.

"However, corporate loans also need to grow because, unlike
consumer loans, they have a huge trickle-down effect on the
economy," said Antara.

Bank Indonesia data shows that consumer loans had grown by an
average of some 40 percent in the past five years, from about Rp
40 trillion in 2000 to Rp 151 trillion last year. The growth has
allowed consumer loans to contribute 27.3 percent to the total of
outstanding bank lending, as compared to 14.9 percent in 2000.

By comparison, corporate loans grew by about 15 percent per
year during the same period.

Elvyn attributed the slower growth of corporate loans, in
part, to tougher regulations issued by the central bank,
especially on risk management, in a bid to prevent more defaults.

"Corporate loans will, at best, grow by 15 percent per year,"
he said, adding that it would then encourage them to divert more
of their funds to consumer loans, which are perceived to carry
lower risks.

"Banks that traditionally focused on corporate lending will be
burdened by the requirement and will shift to consumer lending,"
said Elvyn.

Sigit Pramono, president director of Bank Negara Indonesia
(BNI), also revealed that there was a tendency for banks to try
and reduce their dependence on corporate loans amid the growing
attractiveness of consumer loans.

BNI is the nation's third largest bank, and lends 41 percent
of its loans to corporations.

Sigit said that consumer loans had become the main attraction
of the sector, thanks to the market potential and the lower risk
relative to corporate loans.

However, he said that even though consumer loans carried a
lower risk, the risk could be lowered further by the formation of
the much-anticipated credit bureau.

"To be honest, there have been a number of consumers who had
bad credit at one bank and still received a new loan approval
from another bank," said Sigit. "This is very dangerous to banks,
but made possible because, currently, nobody can check the credit
history of an individual." (002)