Indonesia eases credit guarantee rules in bid to spur loan growth

• Indonesia has eased its rules for offering government guarantees for companies’ bank loans, in a bid to spur credit growth and avoid further layoffs, the finance ministry said on 5 Apr 21.
• Authorities have said they are focusing on battling a credit crunch to spur a recovery, after a round of monetary easing and fiscal stimulus.
• The new rules will allow businesses that employ a minimum of 100 staff, or as few as 50 employees in some sectors, to apply for a government guarantee for new working capital loans at commercial banks, the ministry said in a statement.
• The previous scheme, launched in Jul 20, had a threshold of 300 staff.
• The relaxation also includes allowing guarantees for loans of up to three years, versus the earlier scheme backing loans of up to a one-year maturity, and halving the minimum loan size to IDR5bn (USD345,000).
• Only businesses hit by the pandemic can apply, the ministry said.
• Loans extended by commercial banks in Indonesia have shrunk despite the financial markets having ample liquidity and the banking regulator easing loan restructuring rules.
• Bankers have blamed weak demand, while the authorities say the banks themselves have been slow to pass on the monetary easing to customers, instead looking to protect their own margins.
• Outstanding credit by commercial banks contracted 2.15% y/y as of the end of Feb 21, Bank Indonesia said.
• “We hope with the loosening of this scheme, we can help maintain financial conditions of corporations and stimulate the real sector, while also impacting other aspects, such as minimising pandemic-related layoffs,” the finance ministry said.

External Link : https://www.reuters.com/article/idUSL1N2LY0FI