Wednesday, 25 November 2015


The government was asked to be more aggressive in enhancing credit, especially for infra structure to motivate businesspeople to expand so in the end demand for credit would soar up.

So now it was up to the Government, how serious are they to restore slow-going economy? They were good in planning but how good were they at executing the plan they made? Now the mission was how to encourage and motivate businesspeople.

It was also advisable for the Government to release economic and fiscal regulation which was favorable to business, investors and market. Business people’s anxiety was evident in BI’s data which posted low demand for new credit in Q II 2015 compared to same period last year.

BI’s survey showed that net balance (SBT) was 66.7% which was lower than Q II 2014 which grew by 87.9%. SBT of Q III 2015 was the lowest in 5 years. BI reckoned that adverse condition of business and low need for financing due to economic slowdown accounted for stagnation in extention of new credit.

Evidently bankers axed target for credit growth in RBB which was submitted to OJK last June. Bankers revised credit growth target From the previous 165 – 17% to 13% - 15% only by year end.

By OJK calculations the average target of credit growth came to 2.57%. the lowest credit downturn was posted in banks of the BUKU 1 category 6.5% while target for BUKU 4 category banks slumped by 1.4%

In response to businesspeople’s demand, OJK released 35 stimulus policies with the objective to stimulate growth for banks, the capital market, and financial industry and INKB non bank category.

The policy was released by the financial authorities as locomotive of national economic train. Hopefully economy could stabilize and grow faster. The policy package would allow room for the financial industry to grow without relaxing control.

The policy package consisted of 12 policies of the banking sector, 15 policies of the capital market sector 4 policies in the IKNB sector and 4 policies in education and consumer protection.

For the banking industry there would be 4 policies which was to underscore 8 temporary policies in 2 years. The following were 12 regulations related to the banking sector.

Firstly, on outstandings of credit guaranteed by the Government, risk of 0% would be imposed in asset calculations based on ATMR risk.

Secondly risk content for automotives (KKB) was set at 75% in ATMR calculation for credit risk.

Thirdly application of Business Prospect Evaluation as one of the preconditions for credit restructurization regardless of market condition or industry of the debitor’s business sector.

Fourthly execution of credit restructurization before degradation of credit quality.

Fifthly lowering of credit with house as guarantee was set at 35% regardless of LTV in ATMR calculation for credit risk.

Sixthly lowering of KPR risk for RSS type of settlement in the Central Government policy set at 20% regardless of LTV value in ATMR calculations.

Seventhly, lowering of risk for KUR credit guaranteed by JAMKRIDA risk of 50% could be imposed.

Eighthly, evaluation of credit quality for one debitor or project was only based on right payment of capital and/ot credit increase by Rp.1 billion at the most to Rp.5 billion at the most only based on proper payment of capital interest.

Ninthly, evaluation of credit quality after restructurization (a 2 year temporary policy).

Eleventhly appraisal of credit quality after restructurization with grace period effective through grace period.

Twelfthly Precondition of Composite Health Level Ranking for banks making capital placement in the process of company establishment which would take over NPL of the same bank with maximum possession of 20% and was not decision maker or additional capital placement for rescuing subsidiary company.

In case of IKNB Sector, the authority would exercise relaxation policy called non performing financing (NPF) in the effort to propel financing growth by the financing agency. In the policy package for the capital market, the authorities would persuade UKM to go public.

OJK also strengthened access for UMKM to financial resources. For that matter OJK also enhanced capacity buiding for UMKM in finance management.

The banking circles rated that the ATMR policy in the UMKM sector would promote the real sector. OJK’s decision was rated as right because credit for UMKM and KPR energized small and medium industry.

Noteworthy was the fact that OJK was also paying attention on agriculture insurance to strengthen farmer’s access to financial resources and the agro sector could develop. Agro industry could pose as solution to low insurance industry today.

The agro sector was the real sector with highest impact on economy. Ricefields were today not only owned by personal farmers but also private companies, corporations and BUMN. If the agro industry project ran, budget absorption in the agro sector could be accelerated. General insurance companies would be motivated to embark on this business line.

OJK confirmed that the agro – insurance project would be realized next year. The insurance companies combined in a consortium would immediately start administrative data compilation. OJK also probed on the possibility of insuring animal farming. Seven companies already ready to run ago-insurance, among them was Jasindo.

OJK founded the UMKM rating agency to minimize the asymmetric information issue in financing and toward facing AEC. OJK also founded micro financial institution for UKM to encourage UKM to set up a legal company so they apply for confirmation letter.

However OJK stressed that all of the relaxation policy was temporary, it would only be effective for the next 2 years. In fact there was nothing new about the policy. It was just some sort of underscoring when economic process slowed down.

It was always possible that the OJK relaxation was only effective by next year in promoting credit growth. But at least for this year – since there was only six month left – the effect could be credit growth of 1% to 2% only. All in all the projection of credit growth could be slightly jacked up in the range of 13% - 15% only.

OJK had to make sure that relaxation of banking regulation would trigger moral hazard; it must be constantly monitored because it might start moral hazard which means window dressing if it was let to happen for too long.

To anticipate moral hazard OJK underscored that relaxation of regulation could only be enjoyed by banks having good risk management applying Good Corporate Governance (GCG). One thing was sure bankers were most happy with OJK policy. Relaxation could save financing in the loss potential sector.

The relaxation also had impact on lessening of provision size on credit extended so it would increase bank’s profit. (SS)

Business News - July 31, 2015

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