Indonesia CB eyes rules to trim rapid loan growth

Indonesia’s central bank might impose rules to trim rapid loan growth in sectors such as property and autos. Officials have said they are considering a system under which a bank’s lending to a sector cannot exceed a certain per centage of the value of the goods being obtained.The move signals that Bank Indonesia is considering ways to tighten policy without lifting interest rates to cool an economy seen growing nearly 7 per cent this year.Bank Indonesia has lagged regional peers in lifting rates this year as it has sought to spur bank lending and avoid attracting even greater “hot money” capital inflows looking for high yields in Southeast Asia’s biggest economy.Authorities are trying to seek a balance between robust lending and a possible over-extension of credit. Auto loans, in particular, are available without a borrower putting down much cash. During the 1997-98 Asian financial crisis, there were massive defaults on Indonesian bank loans.“One of the ways to control rapid loan growth in certain industries is by loan-to-value,” deputy governor Muliaman D. Hadad told Reuters on Tuesday.Hadad said that overall loan growth remained healthy but added that the central bank was watching for “alerts” in some industries that are growing quickly.On Tuesday, the Jakarta Post newspaper quoted BI Governor Darmin Nasution as saying it was closely watching auto and property loan growth, and if the central bank saw some credit expansion as too fast, “it may issue a policy to slow (growth).”As the central bank has sought to promote lending this year, it has left its benchmark overnight policy rate at 6.75 per cent since February, when it raised it by 25 basis points from a record low to calm investor nerves over inflation. Bank Indonesia next meets to discuss policy on Aug.9. China has for months restricted bank lending to slow it from the extraordinary pace seen in 2009, when a surge in government spending fuelled a borrowing binge, though the latest data shows loan demand as defying Beijing’s clampdown.Economists said they did not see any signs of a bubble in Indonesian property markets, as policymakers have worried about in China, Hong Kong and Singapore in recent years. “In property, foreigners at the moment cannot enter the market, unlike in China or Singapore. And prices are relatively low compared to other countries,” said David Sumual, an economist at Bank Central Asia (BCA) in Jakarta.Last week, leading banks Mandiri and BCA posted strong second-quarter profits, reflecting buoyant loans.Overall loan growth reached 23.4 per cent in July, according to the central bank, though top lender Mandiri said it posted 27 per cent loan growth in the first half and BCA said loan growth in housing could reach 35 per cent this year.An Indonesian real estate association said a move by the central bank to contain lending may hurt middle-class buyers who dominate the consumer property market, as well as the industry. House downpayments now average only 10-20 per cent.“Sales are doing well today, why do we need to decelerate them? If the central bank imposes a higher cap for downpayment, the industry will stop and banks will be in trouble,” said Hari Raharta, an executive at the association, Real Estate Indonesia.“The industry doesn’t see any bubble,” he said, adding the world’s fourth largest population required 700,000 new houses a year, and there was a backlog of millions of properties needed.Banks, auto and property stocks were mostly weaker on Tuesday. Mandiri fell 2.5 per cent, property firm Lippo Karawaci was down 2.3 per cent and leading car seller Astra was down 1.5 per cent, all underperforming the Jakarta index.The growing middle class is also snapping up new vehicles, leading to 57 per cent sales growth for cars and 26 per cent for motorbikes last year. A 10 million rupiah ($1,182) bike made by Honda can be bought with no cash.“There are concerns that rapid automotive loan growth will have a bad impact if not regulated, but if the downpayment cap is set at a minimum 30 per cent it will be too high. I think realistically it should be around 10 to 20 per cent,” said Stanley Setia Atmadja, CEO of Adira Dinamika Multi Finance, a unit of Bank Danamon and the country’s leading auto finance firm. From / Gulf today