BI monitors loans for housing

BI monitors loans for housing

The Jakarta Post, Jakarta

The central bank warned banks against concentrating their loan
exposure in the property and housing sector, reportedly on the
rise recently, to counter-balance the negative effect of their
non-performing loans (NPLs).

Bank Indonesia deputy governor Maman Sumantri said on Tuesday
the banks should avoid extending too much credit to the sector,
as it could increase the risk of default.

"What should properly be monitored is, for example, loans for
property. We need to check on whether such loans have been
concentrated in that sector," he said.

Currently, while banks remain reluctant to extend loans to the
corporate sector, they have been focusing their loan exposure to
consumers in the form of car and house loans taking up the
largest portion.

The declining trend in the central bank's benchmark interest
rate (SBI) -- which has led to a decline in bank interest rates
for loans -- provides further leeway for the rise in public
demand for consumer loans, including housing.

However, with the SBI predicted to change course next year
largely because of the general elections, concerns are high that
the current boom in property loans could lead to a massive
default.

Analysts said that during the elections, dozens of political
parties are expected to spend huge sum of money as part of their
political campaigns, resulting in an oversupply of base money,
which could push inflation up.

It is to accommodate such a situation that Bank Indonesia
would likely have no choice but to increase the SBI rates, they
said. Things could get even worse if the elections or the
campaigns become chaotic.

Bank Indonesia Governor Burhanuddin Abdullah has mentioned the
problems by saying that the country's NPLs, on average, had a
tendency to go up because of this, despite the fact that the
current average gross NPL level of 8.3 percent is deemed as
relatively healthy.

However, Bank Mandiri, the country's largest bank, brushed
aside suggestions that extending loans for the housing sector
would create greater risk for the banking sector.

Mandiri vice president I Wayan Pugeg said instead that loans
for housing were among the safest for banks.

"Credit for housing is very "safe", because usually we get up
to 30 percent to 40 percent of the total from the down payment.

"This leaves the balance at only around 60 percent to 70
percent. So, I think it's very safe lending," Pugeg said.

He added that Mandiri's NPL level was currently at 7 percent.