BI to evaluate banks issuing credit cards

Leony Aurora, The Jakarta Post, Jakarta

In light of the robust growth of consumer spending and credit expansion in Indonesia, the central bank is to review banks issuing credit cards to limit the risk of bad lending.

Bank Indonesia (BI) would review the banks' credit risks management, information technology systems and examine how they explained their services to customers, BI deputy governor Maulana Ibrahim said at the sidelines of a hearing with the House of Representatives' Commission XI on financial affairs on Monday.

"We'll prioritize the banks with higher risks, which can be seen from the number of cards they have issued," he said.

BI would start the evaluation program this year, said Maulana, without giving a more specific time frame. Sanctions for financial institutions that violated prudent banking principles could be as severe as revoking their licenses, he said.

The latest data shows there were about 7.5 million credit card users in the country in 2004, with about 16 local and international banks issuing plastic.

Visa International, the market leader in credit cards in Indonesia, with about 70 percent of the market share, has estimated that the number of credit card holders may increase by 20 percent this year.

With some 15 million potential customers still untapped and the economy expected to grow by 5.5 percent this year, banks are now racing to ease procedures for credit card applications and to offer attractive value-added facilities.

Analysts have warned lax procedures and a rising number of credit card users could cause problems with bad loans in the future -- especially if people became multiple credit card users on limited incomes.

To better monitor creditors and help them avoid bad debts, BI plans to establish a credit bureau information system with its own internal funding.

"I have been promised that within two months, (the credit bureau) will be operational," BI Governor Burhanuddin Abdullah said to the hearing.

The bureau will collect credit histories of corporate and individual debtors from participating lenders. Its database, called the Debtor Information System (DIS), would help lenders to obtain more comprehensive information about debtors, Burhanuddin said.

The system would not only hold information about large corporate debtors, but also records of individual mortgage holders and vehicle loans.

"I am positive that this credit bureau will be profitable. In the future, it should be privatized," Burhanuddin said.

According to the Indonesian Association of Credit Card Issuers, the cards are used for 10 million to 12 million transactions a year, worth as much as Rp 30 trillion (US$3.26 billion).

In terms of spending, Citibank, the largest issuer of credit cards in the country with a 35 percent market share, has estimated the industry will grow by between 5 percent and 10 percent this year.