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State Lenders to Write Off Some SME Loans to Help Boost Sector    
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Source: The Jakarta Post, Jakarta

In another effort to help small businesses, four state lenders have agreed to write off a portion of the Rp 17.9 trillion (US$2 billion) worth of loans owed by around one million small and medium enterprises (SMEs).

The relief will apply to the repayments of principal in the case of loans of less than Rp 5 billion, and those fully covered by collateral, Bank Negara Indonesia (BNI) president Sigit Pramono told reporters Monday.

The scheme will also adhere to the relevant government regulations on state assets, and will require the approval of both the state minister for state enterprises and the President, including the exact amount of relief to be offered to individual SME borrowers.

Of the total, Bank Rakyat Indonesia (BRI) will give relief to 796,000 of its SMEs debtors that owe the bank around Rp 7.09 trillion. Bank Mandiri will provide relief to some 88,000 borrowers owing Rp 6.5 trillion, Bank Tabungan Negara (BTN) to 138,000 debtors owing Rp 1.29 trillion, and BNI to 24,000 that owe Rp 2.21 trillion.

Sigit, who also chairs the Indonesian Association of National Banks, said he expected the policy would help SMEs with good prospects but which are currently experiencing difficulty in fully settling their debts.

"With these (debt) haircuts, the SMEs will be able to repay the remaining loan principal, and use the collateral again to extend or take out new loans, while continuing to grow their businesses," he said. "Certainly, if we can support one million SMEs to get back on their feet, than I think it will contribute to driving the whole economy forward." Sigit said he expected the relief to be extended this year, but did not mention any dates, saying this would depend on official approval from the government.

The banking industry's total lending to SMEs as of the end of July reached Rp 450.8 trillion, more than half of the total loans extended during this year's first seven months, and up 19 percent compared with the same period last year. State lenders have channeled Rp 154.3 trillion to SMEs so far this year, up 18 percent from 2006.

Total SME non-performing loans reached Rp 20 trillion, with half of these being owed to state-owned banks. The government has lately stepped up its efforts to promote a wider role for SMEs in the economy, providing them with easier credit and collateral schemes on the grounds that the sector accounts for most of the business enterprises in the country, and contributes significantly to production and employment.

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