Dzulfiqar Fathur Rahman, Jakarta – Finance Minister Sri Mulyani Indrawati has called on commercial banks to ramp up loan disbursement and thereby support government efforts to revive Indonesia's economy amid the COVID-19 pandemic.
Sri Mulyani admitted that the pandemic had disrupted the financial sector, forcing banks to deal with loan restructuring and hold back on loan disbursement. However, banks needed to return to their intermediary function to help the economy.
"It will be very difficult for the economy to recover until the financial sector resumes lending growth," the finance minister said in an online event on Tuesday. "It is impossible to revive the economy with just one growth engine, namely the government, even if the government raises spending."
She added that a recovery in lending growth was important as banks accounted for the lion's share of the financial sector. According to data from Bank Indonesia (BI), banks held 77.69 percent of financial sector assets in April.
The central bank recently lowered its lending growth outlook for this year to between 4 and 6 percent from between 5 and 7 percent after the government had extended until Aug. 9 emergency pandemic restrictions to contain a wave of coronavirus infections.
Loan disbursement improved somewhat in June, when it was up 0.59 percent year-on-year (yoy) at Rp 5.58 quadrillion (US$389.68 billion). Growth was led by consumer loans, which were up nearly 2 percent yoy, followed by working capital loans. Investment loans were still down 0.41 percent yoy.
Josua Pardede, chief economist at publicly listed Bank Permata, said the sluggish lending growth was due to a combination of low demand for loans from businesses and prudence on the part of banks regarding lending risks amid the pandemic. Some companies had also turned to bonds for financing.
The overall bank nonperforming loan (NPL) ratio was at an estimated 3.20 percent in June, slightly higher than a year earlier at 3.11 percent, according to BI. The bad loan ratio was recorded at 4.10 percent for working capital, 3 percent for investment and 1.91 percent for consumer spending.
"According to our research, higher economic growth [normally] implies higher lending growth, and that relationship is stronger than [the reverse] of lending growth pushing economic growth," Josua told The Jakarta Post in a phone interview on Wednesday.
In light of the stricter mobility curbs introduced to contain the pandemic, the government has lowered its economic growth outlook for this year to between 3.7 and 4.5 percent from between 4.5 and 5.3 percent.
Even if banks slashed their lending rates significantly, lending would not grow as long as the economy remained in a slump and there was no demand for loans from businesses, either small or large, said Josua.
Loan disbursement by publicly listed Bank Central Asia, the country's largest private lender, was down 0.3 percent yoy at Rp 593.6 trillion in the first six months.
But the bank's share of loans at risk, including loans restructured in response to the pandemic-induced crisis, plateaued at 19.1 percent in the April-to-June period.
BCA's basic lending rate (SBDK) was 7.95 percent for corporate and 8.20 percent for retail loans in June, down 2 percentage points and 1.2 percentage points from a year earlier, respectively, according to data from the Financial Services Authority (OJK).
"We are still closely monitoring conditions for the national economic recovery amid the [emergency curbs] aimed at curbing the spread of COVID-19," BCA spokesperson Hera Haryn told the Post in a text message.
She added that ample liquidity and an economic recovery were expected to help banks book lending growth between 4 and 6 percent this year.
BI Deputy Governor Dody Budi Waluyo said the central bank supported the banking sector with increased liquidity, thus strengthening the supply side, while third-party funds had grown 11.28 percent annually, further boosting liquidity. Dody said BI projected third-party funds growth of 6 to 8 percent this year.
"Therefore, banks certainly have ample liquidity to spur lending disbursement," Dody told the Post in a text message. "From the demand side, BI continues an expansionary monetary policy and has held the benchmark interest rate [low]."
The latest growth in third-party funds has brought the loan-to-deposit ratio (LDR) down to 81.33 percent, below the typical level of above 90 percent.