Central Bank set to ease credit limit for infrastructure projects
Central Bank set to ease credit limit for infrastructure projects
Urip Hudiono, The Jakarta Post/Jakarta
To support the government's plan of reviving the economy through
massive infrastructure projects, the central bank will issue a
new set of banking rulings for the purposes, including an easing
of the legal lending limit requirements.
BI governor Burhanuddin Abdullah said on Friday that the new
credit limit regulation will relax the maximum allowable lending
for banks for one particular project or sector; up to 30 percent
of its capital, from the current 20 percent.
"Such leniency will be given to those banks -- particularly
state-owned ones -- that channel their credit into infrastructure
development projects, or any other government project intended to
spur the economy," he said.
"The credit limit for such banks will be raised to between 25
percent and 30 percent, depending on their classification as
specified later in the regulations."
The regulations would serve only as a stimulant and not as a
way to burden banks to participate in the infrastructure
projects.
Burhanuddin said he was hopeful that the new regulations would
be able to increase bank lending by more than Rp 100 trillion
(US$11 billion) this year.
Indonesia is preparing itself for massive infrastructure
projects over the next five years in order to boost average
economic growth to at least 6 percent.
Many large banks such Bank Mandiri and Bank Negara Indonesia
(BNI), have expressed their interest in the projects. BNI, for
instance, has said that it plans to allocate Rp 23 trillion
(US$2.5 billion) for infrastructure project loans over the next
five years.
Elsewhere, Burhanuddin said that the new regulation package,
to be issued later this month, will also provide a more flexible
credit assessment procedure, but without putting protection
measures for customers at risk.
Neither would the slackening of credit limits jeopardize the
hard-earned stability of the banking sector, as the central bank
would accordingly tighten supervisory mechanisms on each bank's
credit disbursement procedures.
Burhanuddin cited a number of measures that are already in
place to gauge a bank's health, in terms of financial and lending
performance.
"There is a strict requirement in terms of minimum capital and
bad credits, as well as others, all designed to preserve the
level of credits at a healthy level," he added.
The central bank has set a minimum capital adequacy ratio
(CAR) of 8 percent and a maximum non-performing loans (NPL) ratio
of 5 percent of total credit. CAR measures a bank's capital with
its risk-weighted assets including loans, while loans are
classified as non-performing after interest payments are 90 days
overdue.
During the 1997-1998 Asian financial crisis, Indonesia's
economy was hit hard by the collapse of many banks that had
failed to implement prudent banking practices in their
operations.
Seven years after the crisis, the nation's banking sector has
improved and become relatively more prudent compared to the pre-
crisis situation.
Still, flaws remain in the industry, attributable to a
combination of bad banking practices and weak supervision on the
part of the central bank.
Over the past two years alone, the country has seen at least
three bank closures -- the latest being Bank Global, which was
closed down on Thursday.