Banks still reluctant to boost loans, BI says

Banks still reluctant to boost loans, BI says

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Indonesia acknowledged on Monday that the country's banking
sector had been slow in channeling new loans to the real sector
despite a drop in the central bank benchmark interest rate.

"There are at least three reasons why banks continue to be
reluctant in providing loans," Bank Indonesia deputy governor
Miranda Goeltom told reporters on the sidelines of a meeting with
legislators.

She said the first reason was that investing in the corporate
sector were still considered risky as many of the companies had
yet to complete their debt restructuring process.

"The second one refers to the fact that banks remain reluctant
to lend in an environment where investor confidence remains
weakened by global uncertainties."

She said the global economy downturn, highlighted by the shaky
economic performance of the world's major economic powers such as
the U.S. and Japan, had further discouraged banks to provide
loans to export-oriented firms.

"If the U.S. economy can only grow by around 2 percent each
year, banks consider that as a risk to be taken into account
before providing loans to exporters," Miranda said.

Along with Singapore, the U.S. and Japan are Indonesia's main
export destinations.

The third reason was the banking industry's traumatic
experience in the past, she said.

In the past, local banks aggressively channeled their funds to
the private sector, often their affiliated businesses, without a
sound and proper credit risk assessment. It was the absence of
such action that is believed to have contributed to the
systematic collapse of the banking industry in 1997-1998.

The central bank has been guiding downward the interest rate
of the one-month Bank Indonesia SBI promissory notes in the past
year. The SBI rate is currently hovering at 10.91 percent,
compared to more than 17 percent early last year.

Bank Indonesia expects the lower rate environment will
encourage more bank loans to help companies expand their
businesses and create more jobs.

But the latest data showed that in the first quarter of the
year, new loans only stood at a mere Rp 88 billion. Throughout
2002, the total new loans reached Rp 62 trillion.

Late last week, Bank Indonesia Governor Sjahril Sabirin said
the current SBI rate was low enough, indicating the rate was
unlikely to fall further in the near future.

But Miranda, who is running for the governor post, told
reporters there was still room for a further cut in the benchmark
rate, in hopes to force banks to also further lower its lending
rates.

"If the current condition keeps improving, the interest rate
could fall to around 10.5 percent," she said.

Only by a lower lending rate, the private sector would be
tempted to turn to banks to seek working capital, she said, which
would consequently accelerate productive activities and bode well
for the economic growth.

The lending rate currently stands at a range of 17 percent to
18 percent.

Benign inflation has been the main reason for Bank Indonesia
to allow its benchmark interest rate go down.