Credit extended to small businesses declines: Banker

JAKARTA (JP): The portion of bank loans extended by the country's commercial banks to small businesses has declined recently, Credit Director of Bank Indonesia Mukhlis Rasyid said Wednesday.

Furthermore, in the past most loans were used for personal needs, including house purchases, while only a small part of the loans went to production activities, he said.

"It's disappointing... However, it is truly easier for banks to extend loans to the housing sector than productive sectors," Mukhlis said after signing an agreement between Bank Indonesia and PT Asuransi Kredit Indonesia to promote insurance for banking loans in the country.

He acknowledged that credit extended to small businesses increased from Rp 35.3 trillion as of March 1995 to Rp 42 trillion as of March 1996, but their portion against total loans decreased from 25.1 percent to less than 24 percent.

"If we don't take a number of serious measures, the ratio will continue to decrease," Mukhlis said without mentioning any possible measures.

He noted that many private non-foreign exchange banks have extended less than 20 percent of their total credit portfolio to small businesses.

In its drive to help nurture small businesses, the government requires all commercial banks to extend at least 20 percent of their loans to small businesses.

State banks

Mukhlis said all of the seven state-owned banks have met the government-set target, and some of them have greatly surpassed the target even though the growth of their overall credit expansion had slowed down.

During the first three months of this year, for example, credit expansion by state banks grew about 16 percent annually, compared to over 20 percent at private banks.

"The credit growth at a number of state banks, especially Bank Pembangunan Indonesia (Bapindo) and Bank Bumi Daya, is even slower than at other state banks," Mukhlis said.

The government has decided that overall credit expansion by banks should not exceed 16 percent this year to help cool down the country's overheating economy.

Mukhlis noted that the relatively higher growth of credit for small businesses at state banks was attributed to the government's incessant campaigns to encourage banks to extend collateral-free loans to small businesses.

The government has told all state banks to provide collateral- free credit of a maximum of Rp 50 million to small businesses.

Mukhlis acknowledged that many private banks, especially those specializing in corporate financing, still face difficulties in extending credit to small businesses.

He said the central bank will tie the extension of its liquidity loans to commercial banks with their performance in extending credit to small businesses. (rid)