Indonesia Nudges Banks to Boost Lending to Firms Hit by Virus

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Indonesian authorities urged its top banks to lower interest rates and boost lending to sectors hit by the coronavirus as Southeast Asia's largest economy steps up efforts to mitigate the economic fallout from the epidemic.

Banks have been asked to pass on the benefits of recent cuts in benchmark interest rates and reserve requirements to borrowers, especially small and medium-sized enterprises, Coordinating Minister for Economic Affairs Airlangga Hartarto said after a meeting with chief executives of lenders including PT Bank Mandiri and PT Bank Rakyat Indonesia.

The banking regulator has already eased rules for loan recast and classification of bad debts at some sectors hit by the virus to augment efforts by President

Joko Widodo to cushion the impact of the outbreak on the economy. Bank Indonesia lowered its benchmark interest rate by 25 basis points last month and cut the reserve requirement ratios this week to shore up liquidity but the banks have yet to fully pass on the benefits to borrowers.

Demand for bank loans was sluggish even before the virus outbreak, with credit growth slumping to 6.1% last year, the lowest since the Asian financial crisis, according to Bank Indonesia data.

“We want the liquidity to public, especially SMEs and export-related sectors, to be maintained,” Hartarto told reporters. The government wants to see lending to businesses at close to 6%, the interest rate at which micro businesses can obtain subsidized loans, the minister said.

While Bank Indonesia has cut its benchmark rate by 125 basis points since July, lending rates have fallen only 29 basis points to 10.1%, according to the central bank. The Financial Services Authority is open to extending more incentives, Heru Kristiyana, commissioner for banking supervision, told reporters.

Rate Transmission

The banks agreed to do their bit to buttress government efforts to boost growth. Sunarso, president director of Bank Rakyat, Indonesia's largest lender by assets, said the industry will take steps to accelerate the transmission of rate cuts by the central bank.

“We are collaborating to respond to the current situation and implement the stimulus to accelerate policy transmission,” Sunarso said. “The goal is to maintain the economic growth level.”

The government is working on a second stimulus to shore up the economy in the face of the growing threat from the fast-spreading virus, Hartarto said Monday. The central bank's monetary policy stance remains pre-emptive and accommodative in dealing with the dangers posed by the virus, Governor Perry Warjiyo said Wednesday.

Indonesia's exports, tourism and investment are taking a knock from the spread of the virus, with the nation reporting its first two cases of infection this week. Hartarto now expects economic growth to slow to 4.7% in the first quarter. That would be the weakest pace since the global financial crisis in 2009, official data show.

“We need to pay attention to the value chain of wholesale industry and retail as they are the backbone of the national economy,” Hartarto said. “Banks can support their activities so the value chain of SMEs can be maintained as well. Our economy is 56% based on domestic consumption.”

To contact the reporter on this story: Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net

To contact the editors responsible for this story: Thomas Kutty Abraham at tabraham4@bloomberg.net, Russell Ward

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