BI not to revise legal lending limit

BI not to revise legal lending limit

The Jakarta Post, Jakarta

Bank Indonesia has no plans to revise its 10 percent legal
lending limit in the near future, despite rising calls from
bankers.

Muliaman Hadad, head of Bank Indonesia's financial system
stability bureau, said on Monday that the 10 percent rate was in
line with international best banking practices.

"We haven't seen any need to revise the rate," he told
reporters on the sidelines of a seminar.

He noted, however, that the central bank was considering
adjustments to about 25 banking regulations so they were on a par
with international standards, but did not provide further
details.

Calls for the central bank to revise the legal lending limit
has been increasing recently, particularly as Bank Mandiri failed
to advance to the second round in the tender for a controlling
stake in Bank Permata, the country's seventh largest bank.

Mandiri, the country's largest bank, was unable to make a
proper bid, partly because of the 10 percent legal lending limit,
which restricts a bank's investment in a single entity to a
maximum 10 percent of its equity capital.

Other local banks were also unable to participate in the
tender without forming a consortium because of the lending limit.

Five consortia, mostly led by foreign financial firms, were
shortlisted by the government in the Permata tender.

The strict legal lending ruling was imposed at a time when the
country's banks were mostly controlled by conglomerates, and the
ruling was needed to prevent banks from favoring affiliated
business groups in their lending.

As many major banks have now changed ownership, however,
analysts have said it was high time for the central bank to
revise the legal lending limit to around 25 percent, the standard
in some neighboring countries.

The higher rate would provide banks greater room to maneuver
in acquiring other banks, which is the first step to creating
mergers in the banking industry.