BI issues eight regulations to help economic growth

BI issues eight regulations to help economic growth

Zakki P. Hakim, The Jakarta Post, Jakarta

The central bank issued eight new regulations on Tuesday as part
of a measure to encourage national banks to increase lending to
the real sector and help accelerate economic growth.

While some of the rulings were designed to help provide
assistance, in terms of lending exposure, for victims of the
tsunami disaster, the main goal would be to improve the banking
industry's performance, said Bank Indonesia governor Burhanuddin
Abdullah on Tuesday.

"The issuance is the beginning of a long journey to solve
numerous problems in the economy and the banking sector," he
announced during a press conference, while adding that part of
that journey included preparations for the banking industry to
adopt internationally recognized best banking practices by 2008,
notably those included in the Basel Accord II.

The regulations cover legal lending limits (LLL), banks'
assets, lending quality, debtor information systems, foreign
loans, a customer complaint settlement mechanism, banking
products transparency and special treatment for banks in areas
devastated by the tsunami.

The move means that more funds will be available for the real
sector, which has yet to fully recover from the 1990s economic
crisis, without jeopardizing prudent banking practices.

The new legal lending limit ruling will allow commercial banks
to lend up to 30 percent of total capital to finance projects
related to infrastructure development, and the building of basic
public services. That figure is up from the current 20 percent.

Burhanuddin said earlier that the higher limit for lending to
certain sectors, including infrastructure, should increase bank
loans by more than US$11 billion this year.

On assistance for tsunami victims, the central bank has eased
the procedures for loan applications in Aceh and North Sumatra
provinces, notably lending for small- and medium-sized
enterprises (SMEs).

More than 160,000 people have been killed, or are presumed
dead in northern Sumatra after the Dec. 26 earthquake and
resulting tsunami, which also left countless businesses
destroyed.

Meanwhile, there were also rulings which covered consumer
protection issues.

The central bank required all commercial banks to settle
customer complaints through a standardized mechanism set out by
Bank Indonesia. Another regulation on the issue required banks to
inform their customers of the benefits and risks of each banking
product they were offering. The ruling also limits the banks in
dispersing personal data on their customers.

Elsewhere, at the press conference, Burhanuddin admitted that
there were still some weaknesses in the banking sector, but added
that the national banking industry had seen rapid improvement in
over the past five years.

The government has been closely monitoring local banks after
it spent around $60 billion to bail them out in the aftermath of
the monetary crisis.

Still, fraudulent banking practices continue. The latest was
earlier this month, where the central bank had to close down Bank
Global due to its financial woes, allegedly as a result of bank
scams.