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NEWS UPDATES Asean Affairs   25  December 2010

Indonesian banks' lending outpaces forecast

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Loans by Indonesian commercial banks this year have grown 23 percent to Rp 1,708.15 trillion ($190 billion) from the same period a year ago, Bank Indonesia said.

The growth came in above the central bank's full-year target of 22 percent, while it measured 19.4 percent on a year-to-date basis.

"Toward the end of year, bank loan disbursements continued to show improvement," BI spokesman Difi A Johansyah said.

Banks have loaned aggressively this year to meet growing demand for financing by corporations and individuals in Indonesia's surging economy.

In the past week alone, Difi said, Rp 7.22 trillion of loans were disbursed, consisting of Rp 4.04 trillion in rupiah-denominated loans and the equivalent of Rp 3.18 trillion in foreign currencies.

However, economists said lending must grow at a higher rate to achieve the 7 percent goal for economic growth in 2014.

Faisal Basri, an economist from University of Indonesia, noted that banks' lending contribution to the country's gross domestic product was still low compared to other nation's.

"Our banks' loan-to-gross domestic product ratio currently stands at around 35 percent. That means real sector performance is weak," Faisal said.

He said the loan-to-GDP ratio in countries such as Vietnam, Thailand and Malaysia already surpasses 100 percent, while in China the ratio is 140 percent.

BI has taken steps to encourage banks to raising their lending. The central bank recently issued a policy that requires banks to have a loan-to-deposit ratio of between 78 and 100 percent starting from March 1.

If not, banks would have to set aside a higher minimum reserve requirements.

Bank Indonesia also plans to encourage more competition in the sector by requiring banks to publicly report their lending rates, allowing banks to become more efficient.

Lowering lending rates is expected to encourage businesses to borrow more from the banking system.

BI is expected to issue the reporting regulation in early 2011.

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