Hasan maintained that based on stability of the financial system, the Financial Services Authority (OJK) was able to create a conducive business climate for banking industry players, through various policies, including credit restructuring, loan interest subsidies, new working capital loans, and other forms of supervision.
"Meanwhile, in terms of the business climate, in which the OJK plays a very important role, (credit distribution) is quite good, especially in the banking industry. However, this is a matter of public demand that has not increased significantly. Hence, the business sector is still holding back business expansion," Hasan noted in a statement here on Saturday.
The spread of COVID-19 during the initial five months of this year significantly restrained economic activity over which there was optimism at the start of the year. Lending in April 2021 still contracted 2.28 percent from the corresponding period in the previous year.
In terms of liquidity, banks are relatively ready to distribute funds to support the government's economic growth target.
The government is targeting a fairly optimistic economic growth rate of above seven percent for the second quarter of 2021. Meanwhile, gross domestic product (GDP) throughout 2021 is estimated to grow by around 4.1 percent to 5.1 percent.
National banking conditions remain quite safe, while the Capital Adequacy Ratio (CAR) as of March 2021 also stayed high at 24.05 percent. Meanwhile, the ratio of non-performing loans (NPL) was recorded to remain low at 3.17 percent for gross and 1.02 percent for net.
However, although conditions in the financial sector are quite stable, banks will still set loan interest rates in accordance with market mechanisms. Hence, economic recovery efforts should be expedited, so that public demand and business income increase.
On the other hand, if the government considers that banking intermediation should be supported by cutting loan interest rates, the Ministry of State-Owned Enterprises (SOEs) can start it with Bank Himbara. Thus, the government not only maintains the financial climate but also intervenes in state-owned banks.
However, Hasan highlighted the importance of conducting the intervention prudently as a restructuring program was being implemented by Bank Himbara for pandemic-ravaged state companies.
In addition, the national banking system had yet to implement efficiency optimally, so banking consolidation is deemed necessary. Too many banks trigger fierce competition for sources of funds, resulting in high funding.
Moreover, low lending was attributed to the bank's policy to place funds in Government Securities (SBN) due to higher and more definite returns, with less potential risk as compared to disbursement to the public.
Chairman of the OJK Board of Commissioners, Wimboh Santoso, had earlier highlighted the continued annual contraction of the industrial banking credit, although it had shown improvement on a monthly basis.
Santoso explained that amid the efforts of all parties to expedite economic growth, the OJK continues to ensure that prudential ratios in the financial sector are well-maintained in a stable condition.
Adequacy of liquidity in the banking sector is also well-maintained, as was apparent from the indicators of liquid assets/non-core deposits (LA/NCD) and liquid assets against Third Party Funds (LA/TPF) as of April 21, 2021, which were recorded well above the threshold, at 162.9 percent and 35.17 percent respectively. Meanwhile, the TPF still showed high growth of 9.5 percent as compared to the corresponding period in the previous year.
He emphasized that the OJK will continue to focus on strengthening integrated supervision and surveillance in order to detect potential risks to financial system stability. The OJK will also continue to implement policies that can accelerate economic growth.
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Translator: Citro Atmoko, Katriana
Editor: Fardah Assegaf
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