BI MAY USE 'LDR' POSITION TO INCREASE BANK LENDING
Posted on August 03, 2010 on 18:36:39 WIB
Indonesia’s central bank (BI) is finalizing a new regulation, which sets minimum and maximum limits for banks’ loan-to-deposit ratio (LDR) in order to encourage banks to increase lending.
The new regulation, still in discussion, will require banks to have a minimum LDR of 75 and a maximum of 102 percent, said BI deputy governor, Halim Alamsyah.
“Otherwise, banks would have to pay a higher GWM,” Halim said. GWM is a reserve requirement or the minimum amount of funds that should be kept by banks at the central bank.
Ahmad Erani Yukstika, executive director of Indef economic think thank, said last week the total amount of loans distributed by banks to the industrial sector was still relatively too low to meet the economic growth target.
“There are indications of deindustrialization here in Indonesia. We have got to optimize fiscal and monetary instruments so they can encourage banks to increase their lending to the industrial sector,” Ahmad said.
According to Halim, lending contribution to the GDP is 23 percent at present, much lower than 26 percent and 67 percent in 1991.
Director of research at Infobank magazine Eko Supriyanto said the low lending growth was not merely caused by banks’ reluctance, but also because of the lack of demand from the industrial sector.
Halim agreed with the argument. But he said there should be a regulation to ensure that banks would be able to carry out their intermediary role more effectively.
“That’s why we hope the new regulation will encourage banks to disburse more loans to industries. We need to ease the way for industries to borrow,” Halim added.
In order to disburse more loans, Halim and analysts agreed banks should have strong capital.
“[Adequate capital] is required not only to build a strong foundation in banks, but more for the ability to disburse loans,” Ahmad said.
Other than giving disincentives for banks whose LDR is less than 75 percent and more than 102 percent, the new BI regulation would also give incentives for banks who have a capital adequacy ratio (CAR) of higher than the minimum 13 percent.
“There are some factors we consider incentives. CAR is one of them, because we want to strengthen banks’ intermediary function and their capitalization,” Halim said.
However, according to BI director of banking research and regulation, Wimboh Santoso, incentives will only compensate the disincentives.
“Incentives would not be higher than the disincentives. But disincentives could be higher than incentives, depends on the bank’s performance,” said Wimboh.
BI governor Darmin Nasution “introduced” the new regulation in a hearing session with the House of Representatives last year in December.
He said the regulations would aim to ensure banks perform their banking intermediary functions to support the overall economy, not only consumer financing, which generally carries lower risks.
Discussions to officially announce the regulation is now in its final phase, but the central bank has stated banks would be given at least six months to adjust before the new regulation is applied.
The central bank summoned bankers last week to introduce the regulation.