Mon, 24 Feb 2003

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.