Aditya Suharmoko, Jakarta – While the financial health of Indonesia's overall banking sector remains fairly sturdy despite massive shocks from the global banking crisis, one key indicator has eluded the sector's performance this year – lending expansion.

Indeed, although the global crisis may have failed to knock the banking industry down, it however had a hand in bringing bank lending expansion almost to a halt as lenders became more cautious in channeling loans on fear of bad loans, while on the demand side, businesses were taking a wait-and-see position waiting for demand to recover.

As of the end of November, new bank loans have grown by a modest 7 percent, data from the central bank shows, far lower than Bank Indonesia's full-year growth target of 15 percent.

The growth is far lower than the 30 percent growth recorded in 2008 which contributed to the country's economy expanding by 6.1 percent.

BI director of banking research and regulation Halim Alamsyah has said lending would likely grow only by between 5 and 7 percent during this year as banks still imposed fairly high lending rates, making businesses – many already producing less on slumping demand – even more reluctant to borrow.

While BI has cut its benchmark interest rate by 300 basis points since December last year to 6.5 percent, bank lending rates were only down 76 basis points, still hovering above 13 percent currently, according to BI data.

But bankers argued that banks have actually provided loans, only to see businesses refuse to borrow because they did not see a reason to borrow for expansion while demand remained low.

"That's the reason why the rate of undisbursed loans is high," said Mirza Adityaswara, chief economist of Bank Mandiri, Indonesia's largest bank by assets.

Undisbursed loans, lending that is already approved but not yet taken up by the creditors, reached Rp 276 trillion (about US$30 billion) as of the end of November as industries were not working at full capacity pending the full recovery of the economy.