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BANK CREDITS INCREASING.

After being on the decline since 1997 when the country was first hit by the crisis, bank credits are increasing. The amount of bank credits rose from Rp 228.8 trillion in April to Rp 246 trillion by the end of July. By the end of 1999, bank credits totaled only Rp 225.1 trillion. This means an increase of 9.3% in the first 7 months of 2000.

Data at Bank Indonesia showed that in the first half of 1998, bank credits still climbed by 65.7%, but in the second half of that year when the economic crisis took a higher toll on the banking sector, the amount of bank credit shrank by 22.2%. The decline followed reports of many cases of non performing credits and liquidation of a number of banks in November, 1997. The Indonesian Bank restructuring Agency (IBRA) was then established to handle recovery of credits. Altogether, however, a 28.9% increase was still recorded in the amount of bank credits in 1998.

The decline in bank credits continued until less than half in amount by the end of 1999. In 1999, bank credits dropped 52.8% to Rp225.1 trillion from Rp 476.8 trillion by the end of 1998. This followed the freezing of a number of banks in March, 1999 and the transfer of credits from liquidated banks recapitalized by the government. The steepest decline in the amount of credits was recorded by Indonesian private banks, which contributed 44.6% or Rp 168.7 trillion to total banks credits in the country in 1997 - exceeding the portion of state banks of 40.5% or Rp 153.3 trillion.

As already said that the sharp decline in bank credits in 1999 was caused by suspension of a number of banks in March that year and transfer of credits of recapitalized banks. In 1999, credits by Indonesian private banks dropped 71% to Rp56 trillion and those by state bank shrank by 40% to Rp 112.3 trillion or 50% of the total amount of bank credits. State banks also transferred their non performing credits to IBRA, resulting in a decline in the amount of their credit.

The increase in credits in 2000 was recorded only by private banks including foreign banks and banks owned by regional administration. The credits of state banks still tended to decline on the average. By December 1999, credits of state banks totaled Rp 112.3 trillion, but by the end of July the amount shrank to Rp 101.7 trillion.

In addition, increase in credits was recorded only by certain banks. A deputy chief of IBRA Jerry Ng said nine banks under IBRA accounted for Rp 6.347 trillion of the Rp 18.7 trillion increase in bank credits in the first half of 2000. Among the nine banks included Bank Bukopin accounting for Rp 2.844 trillion, BCA for Rp 1.28 trillion, Bank Universal for Rp785 billion, Bank Danamon for Rp 782 billion, BII for Rp 313 billion and Bank Lippo Rp 199 billion. The rest came from Bank Artamedia, Prima Express and Bank Patriot.

Jerry Ng said Rp 21% or Rp1.33 trillion of the credits went to small and medium businesses; 37% or Rp 2.34 trillion as pn)gram credits, 35% or Rp2.22 trillion as corporate credits and 7% or Rp 445 billion as consumption credits. Assuming that each bank has a capital adequacy ratio of 8%, credit expansion capacity by June 30, 2000 totaled Rp 88.9 trillion.

Table - 1 Developments of bank credits by groups of banks, 1997 - 2000
 Regional Private
Year State banks Development National
 banks Banks

1997 153,266 7,539 168,723

1998 Qrt IV 220,747 6,570 193,361

1999
January 226,788 6,655 199,100
February 225,514 6,782 197,832
March 154,377 6,977 138,358
April 144,816 7,334 75,837
May 141,720 6,756 71,715
June 131,791 6,134 64,164
July 130,222 6,255 34,176
August 132,241 6,342 64,555
September 135,539 6,476 62,515
October 127,914 6,560 58,483
November 132,522 6,749 55,655
December 112,288 6,793 56,012

2000
January 111,452 6,894 56,250
February 112,297 7,221 57,407
March 102,364 7,344 60,562
April 102,308 7,632 63,293
May 102,745 8,061 66,769
June 100,941 8,600 68,823
July 101,725 9,090 70,686

 (Rp billion)

 Foreign/joint
Year venture Banks Total

1997 48,606 378,134

1998 Qrt IV 66,748 487,426

1999
January 71,739 504,282
February 69,810 499,938
March 66,831 366,543
April 59,890 287,877
May 57,411 277,602
June 49,173 251,262
July 48,775 249,428
August 54,437 257,575
September 58,732 263,262
October 50,022 242,979
November 52,358 247,284
December 50,040 225,133

2000
January 51,394 225,990
February 51,820 228,745
March 52,965 223,235
April 55,544 228,777
May 60,354 237,929
June 61,771 240,135
July 64,525 246,026



Source: Bank Indonesia

Industrial sector still the largest

The industrial sector is still the largest recipient of bank credits. In the April-July period, a high increase was recorded in the amount of credits for the industrial and trade sectors. On the contrary a decline was recorded in the agricultural and services sectors.

By the end of July, credits for the industrial sector totaled Rp 92.4 trillion or 37.6% of the total bank credits. The credits for trade sector amounted to Rp 46.1 trillion or 19.4%. Other major recipients included the service sector accounting for 18% or Rp 44.3 trillion of the total credits.

Table - 2 Developments of bank credits by sectors, 1997 - 2000
Year Agriculture Mining Industry
 sector

1997 26,002 5,316 111,679

1998
Qrt. IV 39,308 5,909 171,668

1999
January 40,050 6,271 181,345
February 40,696 6,239 178,919
March 28,810 5,555 133,283
April 22,249 3,945 110,290
May 23,162 3,888 104,898
June 22,509 3,589 91,274
July 23,679 3,730 89,649
August 25,404 3,958 95,734
September 24,510 4,311 100,176
October 24,118 3,644 89,953
November 25,209 3,839 94,148
December 23,777 3,697 84,259

2000
January 23,836 4,854 84,989
February 24,345 4,897 86,746
March 24,677 4,970 82,631
April 24,264 5,258 86,664
May 23,524 5,558 89,082
June 23,332 5,516 90,026
July 23,386 5,666 92,431

 (Rp billion)

Year Trade Services Others Total

1997 82,264 113,569 39,304 378,134

1998
Qrt. IV 96,364 139,124 35,053 487,426

1999
January 99,036 143,204 34,376 504,282
February 98,538 141,437 34,109 499,938
March 71,705 96,981 29,209 366,543
April 61,230 62,198 27,965 287,249
May 58,814 59,013 27,827 277,602
June 53,651 52,852 27,381 251,262
July 52,982 52,186 27,202 249,428
August 52,524 52,700 27,255 257,575
September 53,296 53,512 27,457 263,262
October 48,630 49,115 27,519 242,979
November 47,746 48,281 28,061 247,284
December 43,288 43,161 26,951 225,133

2000
January 42,189 42,925 27,197 225,990
February 43,099 42,119 27,539 228,745
March 41,278 41,550 28,129 223,235
April 42,096 41,961 28,534 228,777
May 46,119 44,139 29,507 237,929
June 46.08 43,776 30,777 240,135
July 47,802 44,329 32,412 246,026



Source: Bank Indonesia

The increase in the amount of credits from private banks in the first half of this year indicated progress made in improving the banking condition although not all banks enjoyed improvement. State banks, however, are still in the doldrums as they have not fully completed the process of recapitalization that even if they have enough funds they will risk affecting their CAR position if they start extending credits. To cope with the problem, Bank Indonesia recently announced a regulation on method of determining CAR enabling banks more room for credit extension.

Credit in forex up faster

The increase in the amount of bank credits in rupiah was also prompted by falling value of the local currency against the U.S. dollar. The rupiah depreciation resulted in an increase in the value of forex credits in rupiah term. In the second quarter (April-June), 2000, the amount of forex credits rose 24.7% to Rp 105.5 trillion while credits in rupiah dropped 4.2% to Rp 134.6 trillion. As a result, during the period of crisis, the portion of forex credits tended to rise while the portion of rupiah credits tended to decline. By the end of December 1998 credits in forex made up 35.8% of the total credit in rupiah term, but by the end of June, 2000 the portion rose to 43.9%. On the contrary the portion of rupiah credits dropped 64.2% to 56.1% in the same period. The decline in the portion of rupiah credit was recorded mainly among state banks. By the end of 1999, rupiah credits by state banks amounted to Rp 84 trillion, down to Rp 70 trillion by the end of June, 2000. On the contrary the amount of rupiah credits from Indonesian private banks rose to Rp44.1 trillion by the end of June, 2000 from Rp 39.3 trillion by the end of 1999.

Table - 3 Developments of bank credits by currencies, 1997 - 2000
 (Rp billion)

Year Rupiah Exchange Total
 rate

1997 261,534 116,600 378,134
1998 Qrt IV 313,118 174,300 487,426

1999
January 312,781 191,501 504,282
February 313,828 186,110 499,938
March 231,423 135,120 366,543
April 180,541 106,708 287,249
May 173,863 103,739 277,602
June 165,340 85,922 251,262
July 162,514 338,176 249,428
Augusts 159,598 97,977 257,575
September 156,486 106,776 263,262
October 153,881 89,098 242,979
November 152,441 94,843 247,284
December 140,527 84,606 225,133

2000
January 136,822 89,168 225,990
February 136,492 92,253 228,745
March 130,875 92,360 223,235
April 130,637 98,140 228,777
May 133,719 104,210 237,929
June 134,654 105,481 240,135



Source: Bank Indonesia

Amount of non performing credits smaller

Meanwhile, the collectibility of credits is improving as indicated by dwindling amount of non performing credits.

Data of Bank Indonesia showed that non performing credits amounted to Rp36.6 trillion or 13.2% of the total credits by the end of May, 2000. By the end of July, 2000 the amount dropped to Rp30.5 trill;ion or 10.6% of the total credits. In the same period, the amount of liquid credits rose from Rp167.4 trillion or 60.2% by the end of May, 2000 to Rp180.6 trillion or 62.9% of the total credits by the end of July, 2000.

By the end of December, 1998 bank credits totaled Rp587.6 trillion. Credits categorized as bad debt totaled Rp128.3 trillion or 21.8% of the total credits. In 1999, many banks were taken over by IBRA to be recapitalized and restructured . As a result the amount of bank credits dropped sharply to Rp277.3 trilolion.

The decline reduced the amount and portion of non performing credits to only Rp27.4 trillion or 10% of the total credits. In January through May 2,000, the amount and portion of non performing credits tended to rise to Rp36.6 trillion or 13.2% of the total credit of Rp277.8 trillion by the end of May, 2000.

The increase in the portion of non performing credits in the first 5 months of this year came after large credits previously categorized as" in special watch", less liquid and in doubt became non performing credits.

Table - 4 Developments of bank credits by status, 1998-2000
 In special Less
Year Liquid watch liquid

1998

June 468.0 131.9 108.5
Dec. 240.8 57.9 71.6

1999

Dec. 160.9 25.2 28.1

2000

April 163.7 23.7 27.2
May 167.4 24.0 26.4
June 173.3 22.0 32.2
July 180.6 22.4 32.9

 (Rp trillion)

 Non
Year In doubt performing Total

1998

June 46.5 35.6 790.5
Dec. 88.9 128.3 587.6

1999

Dec. 35.4 27.4 277.3

2000

April 29.1 31.7 275.4
May 23.1 36.6 277.8
June 21.4 30.2 279.2
July 20.8 30.5 287.2



Source: Bank Indonesia

KUK increasing but still low in portion

The increase in the amount of bank credits is expected to contribute to financing small and medium enterprises. The government encourages development of small and medium businesses resulting in an increase in the amount of credits for small businesses (KUK) funnelled by banks although remain small in portion. Data at Bank Indonesia showed that in the first two months of 2000 KUK rose in amount by Rp 803 billion to Rp 38 trillion, whereas in 1999, KUK dropped 18.3% to Rp 37.2 trillion from Rp 45.6 trillion by the end of 1998. The increase in the amount of KUK in the first two months of this year resulted in a rise in its portion to 16.6% in February from 8.9% in January. In addition, the decline in the amount of credits channelled by banks to small business in the form of KUK was reflected by the growing number of banks increasing the portion of KUK in their credit portfolio. IBRA said there are around 10 banks under its control extending credits to small and medium businesses in the first 7 months of this year totaling Rp 3,937 billion.

The ten banks are bank Central Asia Rp 1,179 billion, Bank Universal Rp 1,075 billion, Bank Danamon Rp 791.5 billion, Bank Bukopin Rp 541 billion, Bank Lippo Rp 209 billion, Bank Niaga Rp 55 billion, Bank Prima Express Rp 33 billion, BII Rp 27 billion, Bank Patriot Rp 21 billion and Bank Artamedia Rp 3.5 billion. The amounts of the credits extended to small and medium businesses was around 19.9% of the total bank credit. The amounts are not yet proportional with the number of small and medium businesses in the country but the trend is increasing from only 15% in in the firs half of last year.

Table - 5 Developments of small business credits by commercial banks, 1997 - 2000
 (Rp billion)

 Small business Total
Year credit credit Share (%)

1997 68,723 378,134 18.2
1998 Qrt. IV 45,571 487,426 9.3
1999
January 45,095 504,282 8.9
February 45,100 499,938 9.0
March 38,171 366,543 10.4
April 37,870 287,249 13.2
May 37,453 277,602 13.5
June 37,429 251,262 14.9
July 36,733 249,428 14.7
August 37,017 257,575 14.4
September 37,278 263,262 14.2
October 37,418 242,979 15.4
November 37,750 247,284 15.3
December 37,239 225,133 16.5
2000 Jan. 37,198 225,990 16.5
 February 38,042 228,745 16.6



Source: Bank Indonesia
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Oct 10, 2000
Words:2681
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