BI defends property loan ban

BI defends property loan ban

JAKARTA (JP): Central bank Governor Soedradjad Djiwandono
yesterday defended a ban on new loans for land acquisition and
development, saying that moral suasion had not curbed a rapid
increase in property loans.

Speaking to House of Representatives Commission VII for
finance and trade, Soedradjad said Bank Indonesia (BI), the
central bank, had tried a moral suasion policy with banks for
three years to stop them from giving property loans.

"But at that time people didn't take us seriously," he said.

Last year, BI required banks to submit annual planning
reports, which included the amount banks were planning to
disburse in loans that year.

"Some people may think this has been ineffective, but the fact
is, things could be worse had we not made this stipulation," he
said.

He said many banks were still disbursing loans at a rate which
exceeded the allowable 20 percent growth a year.

"Our decision to curb property loans is not an unexpected
move. Moral suasion just hasn't worked," he said.

BI on Monday issued a decree banning new loans for land
acquisition and development by property companies. The ruling,
which does not apply to cheap housing projects, is to control the
rapid rise in lending to the property sector.

Soedradjad said that at present more than 90 percent of loans
to the property sector were well-performing.

"Thus, compared to total loans, property loans performed
better," he said.

He said a rapid increase in property loans could endanger
banking and monetary stability because the sector was vulnerable
to economic change.

He said property sector financing was long-term in nature, but
funds were absorbed in the short term.

"Liquidity and market risks faced by the banks providing these
loans are relatively high," he said.

He said property loans as a percentage of total loans rose to
19.61 percent in April 1997, from 12.2 percent in December 1992,
with commercial private banks posting the highest growth.

Official figures show that bad debts in the property sector
rose 39.2 percent to Rp 4.66 trillion (US$1.9 billion) in the
first quarter of 1997, over those of last December.

The property sector's cumulative debts as a proportion of
total banking credit increased from 18.8 percent at the end of
last year to 19.6 percent in the first quarter of 1997.

Bad debts

Cumulative bad debt in the construction sector rose 12.3
percent to Rp 2.35 trillion, while bad debt in the housing sector
rose 27.8 percent to Rp 634 billion during that period.

Soedradjad said total bank bad debts as of April were Rp 10.23
trillion, or 2.93 percent of total outstanding loans which stood
at Rp 349.77 trillion.

This was higher than the bad debt level recorded in December
last year, which was Rp 9.5 trillion or 2.87 percent of the total
Rp 331.29 trillion.

"As a percentage of total credits outstanding (2.93 percent),
bad debts were fairly small," he said.

Soedradjad said that of the 2,068 big bad debtors to state
banks whose cases were being handled by a central bank special
credit team, 277 had repaid their debts, 51 were acquired by
their creditors, 351 were rescued through loan rescheduling,
restructuring and reconditioning, 45 were taken to the State
Receivership and 85 were written off.

On BI's monetary policies, Soedradjad said the central bank
would continue to act prudently this (1997/1998) fiscal year,
despite the fact that inflation rates during the previous fiscal
year were kept down to 5.17 percent -- the lowest since
1985/1986.

"This fiscal year, the monetary authorities will maintain
monetary aggregates at a level that does not have an upward push
on prices and the current account," he said.

He said BI would continue to use open-market operations and
moral persuasion as the main instruments to reach the desired
level of money supply in broad terms and bank lendings. (pwn)

Bad debts -- Page 12