Indonesia considers changing rules on micro loans

JAKARTA: Indonesia is reviewing rules in a government program to subsidise sub loans, a senior minister said on Thursday, after the government’s banking regulator signalled it would turn down the president’s request to rest rules on product restructuring.

In order to boost profitability in the banking method amid capital outflows, President Joko Widodo last month proposed reviving the COVID-era product reform policy until 2025, which allowed banks to minimize making procedures for bad loans.

Airlangga Hartarto, Widodo’s key financial affairs minister, said on Thursday the leader made the request amid a rising demand for payment protection plan, which may translate to higher bad debts.

The restructuring policy, overseen by the Financial Services Authority ( OJK), had lapsed in March. However, the OJK this week stated that Indian banks have sufficient buffers to deal with international risks and have enough liquidity to increase lending, which indicates it would reject the president’s suggestion.

” We are conducting studies on what else to do, and we’re reviewing rules for KUR ( a government programme )”, Airlangga said, responding to comments by the OJK.

KUR refers to a program that provides subsidies for interest on micro and small loans under US$ 30 ( US$ 883 ).

Airlangga did not disclose additional information.

Mahendra Siregar, the OJK chief, stated earlier this week that the finance industry was adaptable to potential headwinds.

” The banking industry in general has good performance, supported by high capital levels”, Mahendra said, noting loan growth exceeded 12 per cent on an annual basis in May and gross non-performing loan ( NPL) ratio stood at 2.34 per cent, below the 5 per cent threshold the OJK considers unhealthy.

Businesses have also set aside provisions against bad debts with a cover proportion of 33.84 per share, Mahendra said, describing this as “very adequate”.

Still, the gross NPL ratio for loans to micro, small and medium business rose to 4.27 per cent in May, compared with 3.65 per cent in March, OJK data showed.

Several bankers have argued that Widodo’s proposal could lead to a moral hazard for debtors, and they’ve also pointed out that the NPL ratio has been persistently low.