BI sees 2002 bank loans up over Rp 62 trillion

Berni K. Moestafa, The Jakarta Post, Jakarta

Bank Indonesia expects total bank loans to grow by Rp 62.12 trillion (about US$5.49 billion) this year, as compared to Rp 47.7 trillion in new loans last year, on further loan expansion to small and medium enterprises.

Factors affecting this year's loan growth were the restructuring of loans, the domestic security and political situation and development in the global economy, Deputy Governor of Bank Indonesia Maman Sumantri said on Wednesday.

"In 2002, total loans are projected to reach Rp 427.4 trillion," Maman said in his paper, which reviewed the performance of banks in 2001 and included a banking sector outlook for 2002.

Total bank loans, as of November 2001, stood at Rp 357.2 trillion, he said.

Bank Indonesia's predictions cast hope that the banking sector would gradually return to loan-based income growth.

To date, the earnings of banks have stemmed mostly from the interest rates of state bonds received under the recapitalization program.

Maman said loans made up only 34.7 percent of the banking industry's productive assets, with a chunky 44 percent consisting of recapitalization bonds.

"Interest from government bonds contribute 45 percent of the total income generated by interest from the entire banking industry," he said, adding this earning composition was unsustainable.

Banks with recapitalization bonds tied to fixed rates are at risk of negative spread. This situation arises if banks earn less from their loans or bonds then they spend on paying customers for their deposit interest rates.

Deposit interest rates fluctuate in line with Bank Indonesia's benchmark rates, which have been hovering at over 17 percent over the past few months.

On the other hand, fixed rate recapitalization bonds carry average coupon rates of around 12 percent.

New loans also allow banks to tap higher interest margins than they normally earn from the coupon rates from government bonds.

Several bankers interviewed last week expressed confidence of strong consumer spending creating demand for loans this year.

The one industry sector they said would generate new loans were small and medium enterprises.

Catering mainly for the local market with its robust demand for consumer products, small and medium companies were seen as best positioned to outweather the slump in the global economy.

Some analysts, however, have doubted that consumer spending could maintain last year's robust growth.

Inflation, which climbed to 12.55 percent last year, lingered uncertainly on the political front and featured the rapid depletion of income sources, might break the growth in consumption.

Commenting on this, Minister of Finance Boediono said that local consumption here was different from developed nations.

"Our consumer spending is characterized by the consumption of basic commodities," Boediono explained to reporters on Wednesday.

Even if demand for luxury goods, which has been growing fast since 1999, fades this year, demand for basic commodities will maintain its strong drive.

Boediono said the growth in population would fuel consumption at home, furthering economic growth.

This is in contrast to consumer spending among developed nations, which tends to rest on demands for secondary consumer products such as cars or tourism, according to him.

Meanwhile, Maman also indicated an upswing in Indonesia's falling export revenues. He estimated that foreign currency denominated loans might reverse to 0.5 percent growth this year, from a negative 0.17 percent last year.

A turnaround in foreign currency denominated loans, he explained, would likely depend on the growing need for export financing.