Lending in Indonesia Falters as Central Bank Curbs Take Effect

Lending in Indonesia Falters as Central Bank Curbs Take Effect
The Bank Indonesia headquarters stand in Jakarta, Indonesia. Lending declined after Bank Indonesia said banks must set aside 8 percent of their total foreign-exchange holdings as reserves with the central bank. Photographer: Dimas Ardian/Bloomberg

Syndicated loans in Indonesia fell to the least in a year last quarter as the number of market participants shrank and lenders face central bank restrictions.

Bank loans to companies totaled $2.7 billion since Jan. 1, a 16 percent decline from the three months ended Dec. 31 and the least since the first quarter of 2011, according to data compiled by Bloomberg. Ten banks helped to arrange loans in the three months ended March 31, compared with 27 in the fourth quarter of 2011 and 35 in the third, the data show.

Lending declined after Bank Indonesia said banks must set aside 8 percent of their total foreign-exchange holdings as reserves with the central bank, an increase from 5 percent in June and 1 percent in February 2011. Southeast Asia’s biggest economy also put a 30 percent cap on lenders’ short-term overseas borrowings in January last year after scrapping the requirement in 2008 during the global financial crisis.

“The central bank’s moves last year to control the pace of foreign capital inflows are having a real effect and U.S. dollar funding is tight for most banks based in Indonesia,” Eugene Szeto, the head of Southeast Asia loans syndicate at HSBC Holdings Plc, said in a phone interview from Singapore. “It’s created a situation where aside from the local banks which prefer to lend in rupiah, some foreign banks now prefer to lend in local currency too.”

Tower Bersama Loan

HSBC, which makes more money in Asia than the rest of the world combined, was Indonesia’s second-biggest arranger of loans last year, according to data compiled by Bloomberg.

Borrowers in Indonesia have given banks the option this year of extending funds in rupiah and dollars. PT Tower Bersama Infrastructure, the Jakarta-based provider of telecommunication infrastructure to wireless carriers, hired five banks to help arrange a $250 million loan last month. The facility includes an option to raise an additional $75 million and both portions can be partly funded in the local currency, according to a March 21 e-mailed media release from Oversea-Chinese Banking Corp., one of the loan’s arrangers.

PT Bank Mandiri may join PT Borneo Lumbung Energi & Metal’s $1 billion of financing, being arranged by Standard Chartered Plc, if it can lend in rupiah, a person familiar with the matter said in January, asking not to be identified because the details are private.

Borrowers with local currency requirements, including those whose assets and revenue are in rupiah, would do well to take advantage of the pools of local liquidity, according to Siong Ooi, the Asia-Pacific head of loan syndication at Bank of America Corp.

Libor, Jibor

“The tightness in liquidity is in U.S. dollars,” Ooi said in a phone interview from Hong Kong. “Most local currency markets in Asia are still quite strong.”

The gap between the three-month dollar interbank lending rate and interest-rate swaps, a key gauge of the ease of raising funds in dollars, reached an almost three-year high in January of 50.35 basis points. The three-month Jakarta interbank offered rate, or Jibor, the average rate banks charge in the wholesale money market for rupiah, fell to the lowest in at least 15 years on March 15 at 4.115 percent.

The three-month London interbank offered rate for the U.S. currency, or Libor, was 0.46815 percent on March 30. While that is down from a high this year of 0.5825 on Jan. 3, it’s almost double the 0.245 percent in June, data from the British Bankers’ Association show. Libor is the most widely used measure of bank lending costs.

European Lenders

Bank Indonesia’s enhanced restrictions, initially outlined in December 2010, and their staggered introduction coincided with a sovereign debt crisis in Europe last year that prompted many banks to reduce their lending in Asia to preserve capital, amid a jump in the difficulty in raising dollars.

Three European-based banks participated in the syndicated loans market in Indonesia last quarter, down from seven in the fourth quarter of 2011 and seven in the third quarter, according to data compiled by Bloomberg.

“The main reason why companies are borrowing at a higher rate is due to the increase in the cost of dollars,” Samuel Tan, the Singapore-based vice president of Nomura Holdings Inc.’s fixed income syndicate, said in a phone interview. “Indonesia’s credit fundamentals are better following the increase in the sovereign rating so that would not warrant an increase in loan pricing.”

Fitch Ratings upgraded Indonesia’s sovereign-debt rating in December, followed by Moody’s Investors Service a month later. Indonesia’s economy grew at the fastest pace since before the Asian financial crisis last year as rising investment and domestic spending countered a slowdown in export demand due to Europe’s debt crisis.

Bond sales in the U.S. currency from Indonesian borrowers jumped 41 percent to $2.9 billion last quarter and totaled just $61 million in the third quarter of 2011, according to data compiled by Bloomberg.

“The lack of U.S. dollar liquidity onshore would ultimately see Indonesian banks looking to raise dollars in the bond market,” Tan said. U.S. dollars “aren’t the natural denomination of deposits and it’s become more expensive to raise them,” he said.

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