BI asks foreign banks to up corporate lending

Urip Hudiono, The Jakarta Post, Jakarta

Following Vice President Jusuf Kalla's latest criticism of the reluctance of local banks to provide more lending to the real sector, the central bank has pitched into the act, urging foreign lenders operating in the country to increase their corporate lending.

Bank Indonesia (BI) Governor Burhanuddin Abdullah said that like local banks, foreign lenders should also provide more lending to companies so as to help spur business activities.

"They should not only provide loans for consumer financing," Burhanuddin was quoted by Bloomberg as saying last week.

He said foreign lenders should play a bigger financing role in Indonesia's much-needed investments for infrastructure development.

Burhanuddin did not elaborate, however, on whether the central bank is considering to enforce the policy through an industry regulation.

Data from BI indeed shows that lending from foreign banks -- either for working capital, investments or consumer loans -- still makes up a small share of the local industry's total outstanding credit.

As of February, total lending from foreign banks, which include overseas lenders' local units and joint ventures with local banks, amounted to only Rp 116 trillion (US$12.9 billion), or just less than 15 percent of the industry's Rp 783 trillion total.

Their lending for working capital is at some Rp 81 trillion from the industry's Rp 400 trillion total, while their loans for investments total Rp 14 trillion out of Rp 149 trillion. Consumer loans from foreign banks amount to Rp 20 trillion from the industry's outstanding Rp 227 trillion.

Indonesia may need at least Rp 900 trillion in investments to help reach its growth target of 6.3 percent for this year and 6.8 percent next year, Finance Minister Sri Mulyani had said.

Apart from foreign-established banks having local units, such as Citibank and the Hong Kong Shanghai Banking Corporation (HSBC), and joint-venture banks like ANZ PaninBank, there are indeed several major Indonesian banks in which foreigners now have a controlling stake, such as Bank International Indonesia (BII) and Bank Danamon.

Commenting on BI's latest stance on foreign banks, industry analyst Djoko Retnadi said it was possible to implement a regulation to enforce more working capital and investment loans from the banks, but that it would not necessarily be effective.

"There used to be an industry regulation from BI, stipulating that local banks had to allocate 40 percent of their lending to small business, while foreign banks for export credits, but it didn't work out," Djoko told The Jakarta Post.

"The problem now is that foreign banks actually have only a small share of the industry's total outstanding loans. There has been indication that most foreign banks here focus on consumer loans in building up their profits," he said.

Djoko suggested the central bank discuss the matter with the banking industry at large to discern the correct course of action to push forward corporate lending.

Meanwhile, Bank Central Asia (BCA) Vice President Jahja Setiaatmadja said in a similar tone that BI should approach banks individually in its attempts to encourage loans to particular sectors. He suggested that foreign banks also increase their lending to small businesses.
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