Indonesia's central bank includes Shariah in new lending rule

Bank Indonesia will require also Shariah banks to toughen down payments on housing and automotive loan.

The upcoming regulation is a precaution against a potential increase in non-performing loans amid the ongoing threat of global financial crisis.

Shariah lenders were previously excluded from the regulation as in Islamic finance lending does not require down payments.

“We have decided that the first installment of Shariah credit for goods without down payments will be regulated,” said Bank Indonesia deputy governor Halim Alamsyah.

Under the new regulation, down payments of 25 percent for two-wheeled vehicles are required and 30 percent for four-wheeled vehicles. There were no rules before, but sellers often asked for about 15 percent. Loans typically account for 70 percent of car purchases in Indonesia.

The requirement will be similar to the implementation of the loan-to-value level applied to conventional lenders for housing and vehicle loans issued on March 15 and took effect on June 15.

Bank Indonesia has sent signals to the market that it is cautious that credit expansion could grow too quickly in the future and may exceed local lenders’ financing capacity.

For more.