The Financial Service Authority sees that Indonesian banking loans to grow around 7.5 percent in this year based on the bank business plans - Photo by FSA Office

JAKARTA (TheInsiderStories) – The Financial Service Authority (FSA) sees that banking loans to grow around 7.5 percent in this year based on the business plans of the lenders, said the chairman last week. The third party deposit its also expecting to arise by 11 percent in 2021 compared to previous year.

Wimboh Santoso said in annual meeting of financial industry, to support this year targets, the agency has prepared various strategic policies. He also reported, total outstanding loans of the banks was contracted 2.41 percent in 2020 caused of the COVID-19 pandemic.

In 2020, he was revised down the Indonesian bank credit growth from initial targets to grow 11 percent. Even though its slowing down, he is optimistic that bank loans will gradually improve and start normal again at the beginning of 2021. He was optimistic that bank’ bad loans still be maintained in the range of under 3 percent inline with the implementation of the debt restructuring.

The latest Banking Survey conducted by Bank Indonesia pointed out the declining of new loan growth in the second quarter (2Q) of 2020, with the weighted net balance of demand for new loans deteriorating significantly to minus 33.9 percent compared with 23.7 percent in the previous period and 78.3 percent in the 2Q of 2019.

Respondents confirmed the declining growth of all loan types, especially in investment loans. They predicted looser lending policy in the 3Q of 2020, as indicated by a marked decline in the Lending Standard Index to 3.9 percent from 34.4 percent in the previous period. 

The banks expected to ease lending standards on all loan types through credit lines, collateral requirements and loan maturity. The latest survey also indicated slower credit growth in 2020. Respondents predicted credit growth in 2020 at 2.5 percent in annual basis, lower than credit realization in 2019 at 6.1 percent.

in the mid-2020, the government has placed Rp30 trillion (US$2.14 billion) of funds in the state-owned banks. According to Law Number 2/2020 and finance ministerial decree Number 70/2020, minister of finance will forge the government fund to the state-owned banks in the context of economic recovery.

The FSA also prepared anchor bank and a number of schemes to overcome the liquidity problems in the Indonesian financial industry in the midst of the pandemic. The government will provides a liquidity assistances through a placement of deposit to the anchor bank.

Santoso explained, the lender will consist of systemic state and private banks. The definition of a systemic bank is have a large amount of assets and varied product complexity with a financial conglomeration. The systemic banks also have links with other lenders, and their position is irreplaceable in the event of failure or closure.

He said, the state or private banks would be able to apply for loans to the anchor banks with several mechanisms and loan guarantees. The loans will be adjusted to market interest rates or market rates so that companies applying for liquidity assistance become last resources, not as first resources.

Santoso stressed out that this facility could only be obtained by banks that were considered still healthy. He added, “For unhealthy banks, we ask for depositors or sell their assets to other bank or other parties. Or we can use merger schemes or use Deposit Insurance Agency schemes.”

Earlier, the agency has announced that the regulator can force Indonesian banks to consolidate, merging or other steps to maintain financial stability amid the COVID-19. The regulation consists of the scope of regulation applies to banks and branch offices domiciled overseas. The regulator also has authority to give written orders to banks to merging, consolidating, taking over, or integrating.

In addition, written orders are given to lenders that meet the criteria based on FSA assessments. There are also some adjustments to the process of merging, consolidation, acquisition, or integration of the lenders, said the agency.

For conventional and Islamic banks, it can be excluded from the provisions regarding sole ownership in Indonesian banks, ownership of commercial bank shares, and/or deadline for fulfilling minimum core capital. Then, for rural bank and Islamic people’ financing banks or branch offices can still be maintained in accordance with the office network area that has been established.

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