Foreign Banks Will Have to Channel Credits to the Productive Sector

Grace Dwitiya Amianti

Bank Indonesia said foreign investors planning to enter the national banking industry will have to help develop the economy and therefore should channel their credits to the productive sector, a BI executive said over the weekend.

Mulya Effendi Siregar, Bank Indonesia’s executive director for research and banking regulations, said foreign bank credits should be oriented towards providing working capital or investment.

“We will ask them what they will do here. What their business here would look like,” Mulya said.

He said the central bank will carefully monitor to see whether their credits were really being channeled to sectors that impact the national economy.

Foreign banks, he said, should no longer only provide consumer loans but also investment and working capital credits.

But Mulya also said the central bank will not regulate the ceiling for each type of credits for foreign banks.

“The portion will not be determined, but it will depend on the supervisors. We have a supervisory approach to see how far these banks move into a sector or a credit type,” he said.

Finance observer Lin Che Wei said currently foreign banks were very active in credit sectors that they should not be in. Many countries prohibit foreign banks from entering the retail/consumer sector as well as microfinance.

“They have the potential of spacing out the opportunity for private national banks in developing the retail segment and microfinance more seriously,” Lin said.

Lin also said that all banks tended to issue credits in the automotive sector without thinking of the long term effects. He said he believed a recent government regulation setting the minimum down payment portion for automotive purchases would not be enough to curb automotive sales.

“We need a pipe or canal that can regulate the credit channels to so that there is no flooding as is the case now.”

Bank Indonesia, he said, should provide a multiple license system, with specific licenses for each financial sector.

Investor Daily