Wed, 24 Sep 2003

Mandiri may not meet loan target for corporate sector

Rendi A. Witular, The Jakarta Post, Jakarta

State-owned Bank Mandiri, the country's largest bank, said on Tuesday that it might miss this year's lending target for the corporate sector, because the overall business climate remained unfavorable.

"It's not an easy task to channel loans to the real sector these days... It's still difficult. Mandiri is unlikely to meet its lending target for this year," said Mandiri president E.C.W. Neloe.

He said that as in the first semester of this year, the bank only managed to channel less than Rp 2 trillion (US$238 million) in fresh loans to the corporate sector, compared to the initial plan of Rp 8 trillion for the full year.

Neloe said the lower lending was due to two reasons.

First, some companies were still reluctant to expand their businesses because of the poor investment climate and the lack of incentives from the government to support their operations.

"Local investors are facing the same problems as foreigners," said Neloe.

Second, banks still considered lending to the corporate sector a risky business because of the slow debt restructuring progress.

Mandiri lending director Sholeh Tasripan said the bank had listed several sectors that were considered risky, including the textile, forestry and footwear sectors.

Sholeh said that these sectors -- long known as the country's foreign exchange earners -- were risky because their products' competitiveness in the international market had declined.

As of June this year, Mandiri's outstanding loans reached Rp 66.8 trillion, most of which was channeled to the agricultural, trade and chemical sectors.

Bank Indonesia Governor Burhanuddin Abdullah said last week that bank lending must grow by between 20 percent and 22 percent next year to allow the country to reach economic growth of between 4 percent and 4.5 percent.

During the past couple of years, the economy has been growing at a meager rate of around 3.5 percent. The government has been under pressure to push growth to proved more jobs for the 40 million unemployed people.

The central bank has aggressively lowered its benchmark interest rate to encourage banks to cut their lending rates and make their loans more affordable for the corporate sector -- the pillar of the real sector economy.

However, banks are still being criticized for their impotence in reviving loans to the real sector, and are apparently turning a deaf ear to the central bank's call to lower their rates. The lending rate remains high at an average 17 percent to 18 percent, with the real sector still finding it difficult to receive financing from banks.