Lenders to address import substitutes

JAKARTA. Indonesian lenders are slated to address rising import issues at an upcoming banking expo as they prepare to channel higher loans to certain industry sectors that can substitute imports.

According to Federation of Private Domestic Banks (Perbanas) chairman Sigit Pramono, some industries — such as electronics, agriculture and textiles — are already capable of producing goods that can replace imported products.

“We just have to develop them a little bit more, especially small and medium enterprises,” he told a press briefing on Wednesday.

“By providing them with higher loans, we can tone down imports and hopefully reduce the trade balance gap,” he said, adding that lenders would deliberate the issues during the 2014 Indonesian Banking Expo (IBEX), which will take place from Aug. 28 to 30.

The Central Statistics Agency’s (BPS) latest data shows that growing imports continued to hurt Indonesia’s trade balance in the first half of this year, reaching nearly US$90 billion, whereas exports stood at $88.8 billion.

Imports were mostly made up of non-oil and gas with 75.8 percent.

In the non-oil-and-gas segment, machinery and mechanical equipment topped the list of imported goods with $13.04 billion, followed by machinery and electrical equipment with $8.88 billion and iron and steel with $4.36 billion. Also in the top 10 non-oil-and-gas imported goods were plastic products, organic chemicals and cotton.

However, Sigit said that in order to channel the loans properly, the lenders would need to sit with the government and regulator to lay out a detailed definition of “import-substitute goods” or “import-substitute industries”.

“They are not clearly defined at the moment. Data from the BPS does not specifically say that A or B is an import-substitute sector,” he said.

Such a definition is also not available in banking statistics.

The statistics — which are issued monthly by the Financial Services Authority (OJK) and Bank Indonesia (BI) — do not mention “import-substitute industries” and only show that a large part of the loans provided by the banking industry is still disbursed to the wholesale and retail segment.

According to the statistics, outstanding loans amounted to Rp 3.47 quadrillion ($296.22 billion) during the first six months of this year and 20.1 percent of the figure was recorded in wholesale and retail.

Meanwhile, segments such as agriculture, electricity and processing accounted for 5.6 percent, 2.4 percent and 17.5 percent of the outstanding loans, respectively.

Sigit added, called on the regulator to implement leniency to lenders to spur more financing in the import-substitute industries. “We see many start-ups in these industries and we hope that the regulator would adjust its collectability regulation for them,” he said.

Under existing regulations, banks must prepare a certain amount of funds as provision against bad debts. The riskier a loan is, the higher the amount of funds that the lenders must have.

Separately, Bank Negara Indonesia (BNI) business banking director Krishna R. Suparto said the lender had included such import-substitute industries in its lending portfolio.

“The industries are those that apply local content requirements in their manufacturing processes, namely oil-and-gas-supporting business and electricity,” he said.

According to BNI data, loans to these industries post an average 15 percent growth every year. (Tassia Sipahutar)