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.