Quotas worry foreign banks
Quotas worry foreign banks
JAKARTA (JP): Foreign banks have said they will find it hard
to comply with the ruling on small-business credit quotas because
they have trouble assessing small companies.
Paul Beiboer, head of the corporate division at PT Rabobank
Duta Indonesia, said most foreign banks, including Rabobank,
would find it difficult to assess the viability of lending to
small business.
"I think for all foreign-owned banks it will be a big problem
to comply with the regulation," Beiboer told journalists Tuesday.
Early this month Bank Indonesia, the central bank, made it
compulsory for joint venture and foreign banks to lend to small
business.
For this calender year, they are required lend at least 12.5
percent of their credit growth to small business. This quota will
rise to 17.5 percent next year and to 22.5 percent in 1999.
Banks which fail to meet these quotas will be fined 2 percent
of their credit shortfall. These fines also apply to domestic
banks. The proceeds from fines will be used to reward banks which
can exceed the quotas.
Beiboer said most foreign banks were not ready to loan to
small business because the regulation came without warning.
News about the small-business credit quotas was first
circulated several weeks ago.
"Of course to see now the black and white in writing that the
regulation has been issued is somewhat of a surprise,
particularly because the foreign-owned banks are not equipped
with these small loans," Beiboer said.
He complained that small businesses, as defined by the new
ruling, were too small to finance.
"We're talking about loans of less than US$150,000. That means
loans to really small-sized companies... If the size were, for
example, a million dollars it would be easier to comply," he
said.
The definition of small business credit has been broadened to
a maximum of Rp 350 million ($144,628), up from Rp 250 million.
Bank Indonesia's director of credit, Mukhlis Rasyid, said the
increase did not represent a real increase because it only
reflected an adjustment to the value of the rupiah.
Mukhlis said small-business credit should only be for small
businesses, with total assets up to Rp 200 million (excluding
land and buildings) and total business turnover up to Rp 1
billion.
"With this policy, we only want to target the majority of
small businesses, not even the upper level of small companies or
medium ones," Mukhlis said.
The new ruling aims to increase the portion of banking credit
to small business, which accounted for 23.5 percent of local
commercial banks' outstanding credit last year.
The ruling requires domestic commercial banks, with small-
business credits making up 20 percent or more of their
outstanding credit last month, to extend at least 22.5 percent of
their credit growth this year to small business.
Domestic banks, with small-business credit making up less than
20 percent of their outstanding credit, will have to extend at
least 25 percent of their credit growth this year to small
businesses.
Beiboer said that banks with few staff and small back-offices
would find it hard to assess small businesses.
"You can imagine that banks that have branches on almost every
corner of the street are much better equipped to analyze and
monitor small-sized companies than the large banks that have
perhaps only 50 or 100 people in the country," he said.
Banking analyst I Nyoman Moena said that meeting small-
business credit quotas had more to do with commitment than the
number of branches that banks had.
He said the new ruling on small-business credit, which covered
foreign banks, was a fair ruling. Foreign banks were previously
exempt from regulations on small-business credit.
"Banks should realize that extending small-business credit is
one effort toward reaching equal wealth distribution. That is
something that is required by banks operating here," Moena told
The Jakarta Post.
If banks were reluctant to extend credit to small business, it
meant they were contributing to widening economic disparity which
endangered the country's stability, he said.
"Banks should not think of growth only. They should also think
of wealth distribution through credit to small businesses if they
do not want to be a source of destabilization," he said.
Moena, also head of the Local Private Banks Association's
supervisory agency, said that bankers should have high integrity,
which included the pursuit of equality.
Therefore, incentives and disincentives introduced in the new
ruling should be temporary measures to increase banks' compliance
with small-business credit regulations, Moena said. (pwn/rid)