Credit Grows Slowly in Processing Industry

KOMPAS/PRIYOMBODO

A worker makes containers in Cawang, East Jakarta, Thursday (14/11/2019). The government will reduce the business credit interest rate from 7 percent to 6 percent by 2020.

JAKARTA, KOMPAS – Bank loan growth in Indonesia has slowed from 8 percent per annum in September 2019 to 6.6 percent in October 2019. The slowdown trend began in October 2018.

Bank Indonesia (BI) data shows that working capital loan distribution to the processing industry has plummeted from 7.2 percent in September to 3.8 percent in October. In total, the working capital loan rate, which grew 6.1 percent in September, only grew 4.1 percent in October. Investment loan growth has also slowed from 13 percent to 11.4 percent.

Financial Services Authority (OJK) data shows that the processing industry was the highest contributor of non-performing loans (NPL) as of October 2019. At the end of the month, the gross NPL ratio was 2.73 percent, an increase from September’s 2.66 percent.

Problematic credit distribution has been recorded in the upstream sector, not only downstream.

OJK deputy banking supervisor commissioner III Slamet Edy Purnomo said that most of the NPL increase came from the processing industry, with total loans of Rp 200 trillion (US$14.2 billion) as of October 2019. “In the processing industry, I believe [NPLs] mostly come from Duniatex. Problematic credit distribution has been recorded in the upstream sector, not only downstream,” Edy said in Jakarta on Friday (29/11/2019).

Edy was referring to the defaulted bonds of PT Delta Merlin Dunia Tekstil, a Duniatex subsidiary, worth US$300 million (Kompas, 25/7).

Institute for Development of Economics and Finance (Indef) researcher Abra PG Talattov said that slow credit growth should be seen in terms of supply and demand. He said that Purchasing Manager’s Index (PMI) for manufacturing in Indonesia confirmed the slowdown in the processing industry. “Manufacturing’s PMI in Indonesia in October 2019 was 47.7, the lowest it has been in the past four years. The index in September 2019 was 49.1,” he said, adding that a PMI under 50 was a grave sign for the processing industry.

KOMPAS/RHAMA PURNA JATI

Workers pack frozen coconut oil at a coconut processing factory South Sumatra.

In the BI annual meeting on Thursday (28/11) evening, BI Governor Perry Warjiyo said the limited credit distribution was caused by low demand from corporations. Nevertheless, he said he was convinced of banks’ adequate capacity in distributing credits, in line with BI’s loosening policies in reducing interest rates and injecting liquidity.

Between July and October, BI reduced its referral interest rate by 1 percent to 5 percent. Efforts to increase banks’ capacity to distribute loans include reducing the minimum statutory reserve (GWM) or the percentage of savings that banks should maintain in the form of checking accounts at BI.

Opportunity

At the opening of the National Leadership Meeting of the Indonesian Chamber of Commerce (Kadin) in Bali on Friday, Vice President Ma’ruf Amin said that business players should grab opportunities to develop sharia economy. Opportunities exist to manage businesses in line and with sharia economy.

Kadin chairman Rosan Perkasa Roeslani said that synergy was the key in facing global economic uncertainties that still threaten the national economy. Furthermore, breakthroughs and extraordinary steps are required to boost national economic growth. (NTA/JUD/HEN/CAS/LKT/DIM)