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.