Indonesian central bank to provide incentives for banks to boost loans

Indonesian central bank (BI) is finalizing a draft of incentives to kickstart corporate lending and ensure that the economic recovery gathers pace in the coming years, the Jakarta Globe reported here on Wednesday.

The acting BI governor, Darmin Nasution, said that the key incentive will allow banks that lend more to reduce the size of their minimum statutory reserves (GWM), which lenders are obliged to deposit in the central bank.

"We are currently finalizing a policy package to push the bank intermediation function [provide more lending]," Darmin said on Wednesday.

"For example, we will make the calculation of GWM on the basis of the loan-to-deposit ratio, or LDR, so lenders who lend more can provide lower GWM," he added.

Before the credit crisis, Bank Indonesia used LDR to calculate GWM.

At the end of 2008, BI changed the GWM regulation into a level of 7.5 percent from total public funds held in a bank.

Details of the policy will be unveiled at the Bankers Dinner scheduled to be held on Jan. 15.

Despite the low lending rate benchmark set by BI at 6.5 percent in the past five months, banks have been reluctant to pass on the reduced borrowing costs to their corporate debtors.

Overall lending grew just 10.7 percent last year, below BI's target of 15 percent, as many companies were reluctant to take on further debt and many lenders were wary of adding risk.

The BI hopes it can drive credit growth to 20 percent this yearby providing incentives to lend.

Source: Xinhua