The Financial Services Authority's (OJK) recently launched a set of policies that is expected to help salvage lending amid an ongoing economic slump.
One part of the policy package includes leniency for banks to restructure the loans just by considering their consumers' repayment ability, as opposed to the ability, business prospect and financial situation of the customer, as previously reported.
The package was introduced on Friday and is composed of 12 policies for the banking sector, 15 for the capital market sector, four for the non-banking financial sector and four for the education and consumer protection sector. It is expected to improve the overall financial industry.
The policies aim to help banks restructure their customers' loans and to attract more lenders to venture into micro, small and medium enterprises (MSMEs), said OJK chairman Muliaman D. Hadad.
Most banks have slashed their full-year lending targets as annual loan growth has continued to head downward to levels unseen for five years: It was 10.4 percent in May.
"Our data show that lending will grow at around 13 to 14 percent only this year, down from the previous 16 to 17 percent as stated in their original banking business plans," Muliaman said.
However, only banks with "strong" and "satisfactory" risk management ratings can benefit from the new leniency on lending, according to the OJK commissioner for banking supervision, Nelson Tampubolon.
"Those with a ‘strong' rating can push the upper limit of the credit to be restructured to between Rp 5 billion (US$371,802) to Rp 20 billion per debtor, while those with a ‘satisfactory' rating can increase the limit to around Rp 5 billion to Rp 10 billion per debtor," he said.
Another notable part of the new policies will also allow banks to inject capital into a special purpose vehicle (SPV) that will take over and restructure their bad assets.
At the moment, only banks with a composite rating of 1 or 2 can inject capital into an SPV. Banks with a composite 1 rating display the strongest performance and risk-management practices relative to their size, complexity and risk profile.
However, following the implementation of the package, banks with composite rating 3 will be enabled to carry out the practice as well, so long as they are limited to only having a 20 percent stake in the SPV and they are not listed as controlling shareholders.
"This way banks can clean up their balance sheets. Some banks have even begun thinking to go down this road, involving their parent companies to solve the bad loan problem and establish the SPV," Nelson said.
The OJK also widens the implementation of risk weighted asset (RWA) ratios for government-backed programs and the people's credit program (KUR).
"The RWA has been set at zero percent actually for government-related water and electricity projects, but now we apply the same ratio for other projects as long as they are fully insured by the government," Nelson said.
The financial superbody hopes to see higher numbers of banks participate in various government-backed projects, as lower RWA ratio equals lower business risk perception.
Meanwhile, the RWA for KUR has also been set at 50 percent for loans that are insured by Jamkrida or regional insurers. Prior to introducing the new package, the OJK only set such a ratio for KUR that were insured by state-owned insu-rance company Perum Jamkrindo.