JAKARTA (Reuters) – Indonesia is reviewing rules for a government program to subsidize microloans, a senior official said on Thursday, after the country’s banking regulator indicated it would reject a government request to ease rules on loan restructuring.
President Joko Widodo last month proposed restoring COVID-19-era loan restructuring policies that allow banks to avoid having to set aside provisions for bad loans until 2025 to shore up liquidity in the banking system amid continuing capital outflows.
President Joko Widodo’s chief economic affairs minister, Airlangga Hartarto, said on Thursday that the president made the proposal amid growing demand for credit protection insurance, which he fears could lead to an increase in non-performing loans.
A restructuring policy overseen by the Financial Services Authority (OJK) expired in March. But the OJK signaled this week that it would reject the president’s proposal, saying Indonesian banks have enough buffers to deal with global risks and enough liquidity to expand lending.
“We are studying what else we should do and are reviewing the KUR (government programme) regulations,” Airlangga said in response to OJK’s comments.
KUR is a program that subsidizes interest on microloans and small loans up to 500 million rupiah ($30,883).
Airlangga did not provide further details.
Earlier this week, Financial Services Authority chief Mahendra Siregar said the banking sector was resilient enough to withstand potential headwinds.
“The banking sector overall is performing well, supported by strong capital levels,” Mahendra said, noting that loan growth in May was more than 12 percent year-on-year and the gross non-performing loan ratio was 2.34 percent, below the 5 percent threshold the FSA considers unhealthy.
Mahendra also said the bank had made provisions for bad loans of 33.84 per cent, which he said was “very adequate”.
Still, the non-performing loan ratio for loans to small and medium-sized enterprises rose to 4.27% in May from 3.65% in March, according to data from the Financial Services Agency.
Bankers said Joko Widodo’s proposal could create moral hazard for borrowers, while also noting that the bank’s non-performing loan ratio has been consistently low.
(1 dollar = 16,190,000 rupiah)
(Reporting by Gayatri Suroyo and Stefano Sulaiman; Editing by Shelley Jacob Phillips)
