Indonesian banks warned against misusing non-collateral loans

Bank Indonesia warned commercial banks not to use non-collateral loans to finance customers who were unable to pay the required downpayment.

In June, BI lowered the loan-to-value limit for housing loans from 80 percent to 70 percent in order to improve Indonesian banks’ credit quality and push down their non-performing loans .

However, BI deputy governor Halim Alamsyah said that a number of banks illegitimately tried to offer non-collateral loans to customers unable to afford the higher down payments mandated by the central bank.

“Bank Indonesia will soon verify whether banks have complied with the rules of disbursing loans or not,” Halim said.

Halim stated that the central bank would soon send letters forbidding banks from misusing their non-collateral loans to finance their customers’ down payments. BI planned to impose sanctions if a bank was proven to have conducted such operations after receiving the letters, he added.

The loan-to-value policy was implemented by BI amid a sharp increase in consumer loans especially for motorcycle, car and house purchases. A jump in such loans could lead to the increase of bed debt, which would in turn present the banking industry with serious financial problems.

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