Plan to tighten property lending is positive

JAKARTA. Investor service company Moody’s says that the Indonesian banking industry will benefit from Bank Indonesia’s recent policy to tighten property loans.

On 11 July, Bank Indonesia (BI) announced it would lower maximum loan-to-value (LTV) caps — 60 percent for second mortgage loans and 50 percent for third mortgage loans, from the 70 percent cap on all mortgages BI introduced in March 2012 — as of September.

In addition, banks will be restricted from extending loans used as down payments for home purchases. It is expected these measures will reduce demand on residential properties for investment or speculation, instilling more prudent lending and a common prudential standard among banks.

Despite the cap, property loans continue to exhibit worrying signs, with housing loan growth rising by 22.4 percent year on year as of the end of April and apartment purchases surging 80.4 percent.

“We expect the measures, when combined with the central bank’s 50-basis-point interest rate hike, to slow property price appreciation. BI has now raised the benchmark overnight interest rate by 75 basis points in less than a month,” Moody’s said in an official release.

“The average residential home price in the greater Jakarta area rose 22.6 percent year on year as of the end of March, far exceeding the average annual growth rate of 14.3 percent during 2008 to 2012 and average income growth rate of 12.4 percent.”

Although nine of Indonesia’s banks will benefit from the tighter loan measures, Bank Tabungan Negara (BTN) will benefit the most, given its housing loan exposure is 67.2 percent of its total loan book.

In contrast, the effect on Bank Rakyat Indonesia (BRI), Bank Danamon Indonesia and Bank Mandiri will be much smaller, given their low exposures to housing loans.

 

 

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