Banks urged to be more aggressive in providing loans

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Indonesia on Tuesday called on the banking sector to take advantage of the continued improvement in the country's macro- economic condition by aggressively increasing its lending exposure to the private sector.

A controllable inflation rate, stable exchange rate and the downward trend of the central bank's benchmark interest rate should become supporting factors for banks to improve their intermediary role, Bank Indonesia said in a press statement.

The statement was issued after a meeting between the central bank and the government to discuss the country's overall banking condition. Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti and Bank Indonesia senior deputy governor Anwar Nasution were among the participants at the meeting.

Weathering the storm from both global and domestic issues, the rupiah managed so far to maintain its resilience against the U.S. dollar, to hover at a relatively stable range of around Rp 9,000 per dollar.

As such, it has provided little pressure on inflation. In March, year-on-year inflation rates stood at a mere 7.12 percent, on a month-on-month basis, it even went down by 0.23 percent, for a total January to March inflation rate of 0.77 percent.

Such positive developments have pushed the central bank to lower its interest rate. After hovering slightly below 13 percent early this year, the interest rate currently stands at around 11.3 percent. By contrast, early last year the rate stood at around 17 percent.

All these factors should give enough leeway for the banking sector to be assertive in raising their credit portfolio, especially to the real sector, the statement said.

The bank lending data, however, is a different story.

Despite an improvement in the banking sector's overall condition in 2002 -- such as non-performing loans (NPLs) and capital adequacy ratio (CAR) -- its intermediary role has yet to live up to expectations.

While the total loans extended by banks last year rose significantly to around Rp 79.4 trillion from around Rp 60 trillion the year before, only a small portion of it went to productive economic activities in the form of working capital and investment.

The remainder was used for regular operational expenditures.

Bank Indonesia Governor Sjahril Sabirin has said that one of the main reasons behind the banks' reluctance to extend a huge amount of loans was the fact that the country's indebted private sector still was perceived to be high risk.

That discouraged banks from lending, as they would need to provide extra provisions to cover the loans, which would then put the banks' capital in danger.

Bank Indonesia has targeted lending this year to go up by Rp 85 trillion, around half of which will go to small- and medium- sized enterprises.