Tighter rules on finance companies
Tighter rules on finance companies
JAKARTA (JP): The government announced a set of regulations here yesterday in an unprecedented move to curb the activities of finance companies and to cool down the overheating economy.
One of the regulations, which took effect on Thursday, stipulates the closing of leasing, factoring and consumer finance activities to new comers.
Director General for Financial Companies of the Ministry of Finance Bambang Subianto told a press conference that the government has stopped issuing new licenses to finance companies except those to be engaged in venture capital.
"Applications which have now been filed by 17 companies for operations in the financial sector are automatically turned down," he told the conference, which was also attended by senior officials of Bank Indonesia, the central bank.
There are at least 253 non-bank finance companies at present, comprised of 197 domestic firms, 54 foreign joint ventures and two state-owned companies.
The non-bank finance companies, which last year financed a total of Rp 14 trillion (US$6.07 billion), enjoyed more freedom and less restrictions than banks in financing activities.
Last year, the volume of the credits provided by the finance companies grew by over 80 percent as compared to the 25 percent growth booked by commercial banks.
The finance companies, which are mostly owned by commercial banks, are often abused by the banks to break their legal lending limit requirements, according to financial analysts.
Yesterday's regulations also included the appointment of the central bank to supervise the finance companies, including leasing and factoring firms, which were previously solely supervised by the Ministry of Finance.
Boediono, Bank Indonesia's managing director for macro-economy and statistics, told newsmen at the press conference that the new regulations will enable the central bank to control the monetary system more effectively, particularly in checking the money supply at an appropriate level.
Overheating
Last week, the central bank announced its plan to raise the bank reserves requirement, beginning February next year, to three percent of assets from two percent at present,.
The increase in the reserves requirement, which will automatically curb the expansion of bank credits, was issued amid the government's concern over the country's economic overheating.
Bambang said that the central bank will be in charge in supervising the finance companies' offshore loans, lending activities, promissory notes and financial reports.
The finance companies, including factoring and leasing firms, according to the regulations, are allowed only to raise loans of up to 15 times of their equity. Loans from domestic banks are limited only to five times of their equity.
The finance companies are also restricted from issuing promissory notes except when they are used as collaterals for their creditors. They are also restricted from providing equity for non-financial companies, while their equity participation in each of non-financial firms is not allowed to exceed 20 percent of their paid-up capital. The total amount of their equity participation is limited to a maximum of 40 percent of their equity.
In addition, Bambang said, the finance companies are required to submit their monthly financial reports, half-yearly reports on business activities as well as audited financial reports to the central banks.
He said that the finance companies whose loans have exceeded the limit are no longer allowed to raise new loans or to roll over the existing lending activities if their outstanding loans are still above the limit.
The finance companies whose equity participation has already surpassed the limit or those which have direct investment in non- financial firms, are given two years to adjust their direct investment to the new regulation.
The adjustment period for publicly-listed companies is set at three years. (hen)