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Bank Indonesia (BI) is brushing aside concerns over
lower-than-targeted lending despite rising inflationary pressure and
interest rates, arguing robust corporate loan demand will drive 2008
lending growth.
The National Banks Association (Perbanas) predicted earlier this week
that bank lending growth would be hampered by rising inflation and
interest rates as the government is set to increase domestic fuel
prices.
However, BI deputy governor for the banking sector Muliaman Hadad said
Friday the sector would meet this year's 24 percent lending growth
target driven by strong corporate loan demand.
"The year-on-year growth of total lending has been good and up until
now (early May), banks have recorded 28.6 percent growth in total
lending," Muliaman said.
From January to March, the banking sector recorded a 28.1 percent
increase in lending compared to the first quarter 2007.
The government will soon increase fuel prices to help the state budget
cope with soaring global oil prices, which have pushed up the fuel
subsidy budget allocation.
As fuel prices increase, it is feared both inflation and BI key
interest rates will rise too. Borrowing costs will rise, eventually
stifling loan demand and weakening the economy.
Muliaman said the planned fuel prices increase would deter loan demand,
but more from individuals than corporations.
"The fuel prices will surely affect purchasing power, reducing demand
for individual consumption loans. On the other hand, corporate loan
demand is high, especially for large projects.
"This year the banking sector has big demand for loans for
infrastructure, power plant and plantation projects. I'm sure more will
follow," he added.
Muliaman said, the lending sector was still promising.
"Even if demands from individuals decrease, this will be balanced by
increased demand from companies."
According to Perbanas chairman Sigit Pramono, the planned fuel prices
would not only dampen loan growth, but also boost non-performing loans
(NPLs) as more people fail to repay loans.
NPLs fell from 4.78 percent in February to 4.33 percent in March, below
BI's maximum required limit of 5 percent.
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