Banks urged to be more aggressive in providing loans

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.