Bank Indonesia Weighs Looser Lending Rules to Boost Credit

  • Officials may allow borrowing for pre-construction properties
  • Central bank may raise banks’ minimum loan-to-funding ratio

Indonesia’s central bank is considering loosening lending regulations to help stoke credit growth in Southeast Asia’s largest economy.

One possible measure is to let homeowners take out loans to purchase a second property “off the plan,” or one that is pre-construction, Mirza Adityaswara, senior deputy governor at Bank Indonesia, said in an interview on Tuesday in Jakarta. Another option is raising banks’ minimum loan-to-funding ratio from the current 78 percent.

The central bank plans to publish the adjustments to its macro-prudential lending rules next month, Adityaswara said. “We may loosen the loan-to-value ratio instead, or do both,” along with the off-plan loan permission, he said.

Officials are seeking new ways to boost credit growth after a 75-basis point cut to the benchmark interest rate and a 150-basis point reduction in reserve-requirement ratios resulted only in a 22-basis point drop in the average lending rates as of April. Loans increased 8.7 percent in March from a year ago, well below the central bank’s 12 percent to 14 percent estimate for the year. Indonesia’s economy expanded less than forecast in the first quarter, at 4.92 percent.

Further Loosening

“The new off-plan policy for second homes will be supportive to the market and boost loan growth,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta. “Further loosening in macro-prudential policy is needed as the previous easing isn’t effective enough to support loan growth.”

Adityaswara said that Bank Indonesia will still maintain “a prudent policy”, with the authority pledging to keep non-performing loans at below 5 percent of total loans.

Given current regulations, buyers go to developers to pay in installments for pre-constructed second properties, Adityaswara said. That means developers are acting as banks, and next month’s change will address that, he said.

Property Developers

The Jakarta Composite’s property index pared losses to 0.7 percent following Adityaswara’s comments, after falling as much as 0.9 percent earlier. Construction firm PT Jaya Real Property jumped as much as 4.3 percent.

“The news itself should be positive for property developers,” said Edward Ariadi Tanuwijaya, a research analyst at PT DBS Vickers Securities Indonesia. “However, I don’t think it will address the issues surrounding the affordability, after home prices rose drastically in recent years.”

Before it's here, it's on the Bloomberg Terminal.