State lender Bank Rakyat Indonesia (BRI) is expecting Rp 16 trillion (US$1.7 billion) in extra funds to be used for lending following the central bank's recent easing of criteria on loans for small and medium-sized enterprises (SMEs).

"The new SME loan criteria will certainly be beneficial for us," BRI president Sofyan Basir said at a media gathering Thursday.

He pointed out that the new policy would allow the bank to set aside a lower amount of provisional funds to cover the risk of the SME loans, thus freeing up a huge amount of funds -- estimated to be worth Rp 16.35 trillion -- which they said would be mainly used for lending.

Sofyan said that the extra funds would increase the bank's capital adequacy ratio by 4.55 percentage points to 20.66 percent, well above the central bank's minimum requirement of 8 percent.

CAR is the ratio between the bank's capital and risk-weighted assets, mainly loans.

Bank Indonesia (BI) relaxed in January several of its regulations for the banking sector, to encourage lenders to lend more and spur growth.

Among them was lowering of the coverage ratio for risk-weighted assets on loans for SMEs to 85 percent for working loans, to 40 percent for mortgage loans, and to 50 percent for pension loans.

Banks must provide funds from their capital to cover these risk-weighted assets.

The central bank also extended the full implementation of its uniform loan collectibility classification until July 2007, only applying it on syndicated loans and those over Rp 25 billion.

Sofyan added that the latter policy would have little effect on BRI, although it will from now on be more careful in participating in any syndicated loans.

With all this, BRI is expecting its loan portfolio to grow by 15 to 20 percent this year, Sofyan said, in line with BI's own target for the entire banking sector.

BRI, the country's fourth largest lender in terms of assets, had, through September, lent out Rp 72 trillion, 80 percent of that to SMEs, with a gross non-performing loan ratio of only 5 percent.

Sofyan also expects BRI's net interest margin (NIM) to increase by between 15 and 20 percent as well, but will try to negotiate for a dividend payout of between 20 and 30 percent, from the government's request of 50 percent from all state-owned enterprises.

Separately, BI Governor Burhanuddin Abdullah was quoted by Bloomberg Thursday as saying that commercial lenders would extend 22 percent more loans this year, an increase from its previous estimate of an 18.5 percent increase, following the new policy.

"Following the Jan. 31 package, we see that banks have begun adjusting accordingly and that loans are growing faster," he said.

Separately, BRI's director for micro and retail business, Ventje Rahardjo, said BRI was expecting an increase in its fee-based income to Rp 750 billion this year, from 500 billion in 2005.

"We expect our fee-based income can eventually replace our interest income, whose margin has become thinner due to the industry's now tough interest rate competition," he said.