Businesses call for lower bank lending rate

Businesses call for lower bank lending rate

The Jakarta Post, Jakarta

Businesspeople urged the country's banking sector to lower
interest rates on bank loans because the current rate level was
too costly, particularly for small and medium-sized enterprises.

"Businesses can not afford the current lending rate of around
21 percent," Soy Pardede, an executive at the Indonesian
Chambers of Commerce and Industry (Kadin), said during a weekend
investment and economic forum in Bukittinggi, South Sumatra.

The forum was also attended by Coordinating Minister for the
Economy Dorodjatun Kuntjoro-Jakti, Coordinating Minister for the
People's Welfare Yusuf Kalla and Bank Indonesia Governor Sjahril
Sabirin.

Soy said the government could intervene in the banking
industry to push the rate lower because the government had
effectively controlled a number of major banks following the
recapitalization program in the late 1990s.

He said that the intervention was needed as many banks were
still reluctant to channel their money to the corporate sector,
plagued by huge non-performing loans.

Bank Indonesia has been guiding its benchmark interest rate
lower during the past year, from 17 percent in the beginning of
last year to the current level of around 12.49 percent, in the
hopes of enticing commercial banks to lower their lending rates
so that businesses can expand and fuel economic growth.

However, most banks were still maintaining a high lending rate
as the risk of investing in the corporate sector was still
considered high amid slow progress in the debt restructuring
program.

Banks have also been "extra careful" in approving new loans to
avoid past lending mistakes, which contributed to the 1997-1998
financial and banking crisis.

But Soy said that the government must not only focus on
reviving the banking sector, because turning around the business
sector, also hard hit by the economic crisis, was crucial to
create jobs and avoid more unemployment.

He said that without the lower rate, many businesses would
eventually go bankrupt.

Djadin C. Djamaluddin of the Indonesian Textile Association
(API) said that many banks had also charged small and medium-
sized enterprises (SMEs) with high lending rates.

He said that the high interest rate environment had made local
SMEs and their products less competitive compared to their
regional peers which enjoy favorable interest rates on bank
loans.

This year, the banking sector is expected to lend around Rp 65
trillion in new loans, compared to Rp 79.4 trillion in 2002,
according to a data from the central bank. A large portion of
the lending will be directed at SMEs.