Credit extended to small businesses declines: Banker

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)