Banks won't be quick to renew lending: Experts

Banks won't be quick to renew lending: Experts

JAKARTA (JP): Indonesia's real sector should not expect local
banks to resume significant lending in the immediate future even
though the central bank benchmark interest rate has dropped to
the precrisis level and major banks have been recapitalized,
experts say.

Senior banker I Nyoman Moena says that domestic banks need
more time to adjust their lending rate structure to reflect the
current low interest rate environment.

"The real sector will have to be more patient," he said on
Sunday.

Moena said that only banks which had received import financing
deposits from the government could immediately resume lending,
albeit at a limited capacity because the funds were free of
interest costs.

He said importers still had to pay up-front cash at local
banks to open a letter of credit.

"This includes banks like BCA," he said, referring to Bank
Central Asia, which was the country's largest private bank before
being nationalized by the government last year.

The benchmark interest rate of one-month Bank Indonesia
promissory notes has dropped to 18.84 percent, compared to more
than 35 percent at the end of December and 70 percent in August.
A decline in the benchmark rate is usually followed by lower time
deposit rates and lending rates.

Bank Indonesia announced last week that the maximum interest
rate of one-month bank time deposits guaranteed by the government
was 22 percent.

Bankers said that lending rates were now below 30 percent, but
businesspeople say the ideal lending rate is around 25 percent.

The real sector has been badly hit by the economic crisis
because banks have completely halted lending for over a year.

The government has recapitalized some 14 major domestic banks,
including BCA, to lift their capital adequacy ratio (CAR) to the
minimum 4 percent level.

Pande Radja Silalahi, an economist at the Centre for Strategic
and International Studies (CSIS), said that another hurdle to
banks immediately resuming lending was the existing problem loans
plaguing the banking industry.

"Local banks are still having difficulty channeling credit to
the real sector," he said.

"Banks can only resume lending at a considerable amount next
year," Pande added.

The high interest rate environment introduced by the central
bank to prop up the ailing rupiah and curb inflation worsened the
operating climate for banks, causing their loan portfolios to
either turn into problem loans or nonperforming loans.

The Indonesian Bank Restructuring Agency (IBRA) has assumed
some Rp 220 trillion in nonperforming loans of the recapitalized
banks.

Pande said the real sector should look to foreign banks or
other lending institutions for the time being to secure working
capital.

But analysts have said that overseas lenders are reluctant to
channel money to Indonesian companies until a credible resolution
on some US$68 billion in corporate overseas loans has been
reached. Only a few local companies have reached debt
restructuring agreements with their foreign creditors.

Pande said a credible loan workout strategy employed by IBRA
would be essential to help local banks start channeling credit
again.

"But IBRA has so far failed to display a credible program. It
has often delayed its program schedules at the expense of its
professional credibility," Pande added.

He cited last week's decision by IBRA which provided more time
for recalcitrant bad debtors to enter into a debt repayment
agreement.

IBRA announced last week that 26 bad debtors, out of the 200
largest bank bad debtors, failed to sign letters of commitment to
repay debts owed to the agency by the June 30 deadline. The
deadline was initially set at June 22.

But the agency said it was giving more time to some of the
debtors, claiming that the delay was due to technical reasons.
(rei)