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.