Domestic bank lending for oil, gas and mining sectors is still very small: BI
JAKARTA: Bank Indonesia (BI) recorded that domestic bank lending to the oil, gas, and mining sectors is still very small, contributing only around 3.17 percent of total banks' outstanding lending.
Irwan Lubis, head of the research and banking regulating bureau at the central bank, said that bank lending to the sectors amounted to only around Rp 53 trillion (US$5.86 billion) out of domestic banks' total outstanding loans, currently valued around Rp 1,700 trillion.
"It's only 3.17 percent of total lending, meaning the gap is very big," Irwan said during a seminar on energy and mining last week.
Most lending to the sectors went to oil and gas, accounting for 65 percent of the total, he said, adding that the second highest amount went to Indonesia's coal industry, accounting for 24 percent. Irwan said that, as debtors, the oil, gas, and mining sectors actually showed good performance.
"The sectors' gross NPL (non-performing loans) is only 2.14 percent, which is lower than the average national NPL for total bank lending. This should encourage banks to provide more lending to the sectors," he said.
Despite the positive indicator, current lending from domestic banks to the oil, gas, and mining sectors is still very low because, among other reasons, the banks' lack of knowledge about the industry, Irwan said. "The biggest factor contributing to the low lending is the banks' lack of knowledge for analyzing both risks and opportunities. Bank account officers sometimes do not have sufficient knowledge of the industry," Irwan said, adding that this obstacle could be overcome through intense dialogue between banks and industry players.
Another obstacle hampering domestic bank lending to the industries is the long investment period for oil, gas, and mining projects. "Most banks' funds are short-term, thus, there is potential for a liquidity mismatch," he said.
However, solutions for this should be negotiated by both parties, he added. Irwan said BI, as the monetary authority, would issue several regulations to help the oil, gas, mining, and other sectors, to access capital at reasonable rates. "BI will force banks to be more trans- parent regarding the basis of their lending rates. There will be several regulations forcing banks to be more competitive in terms of lending rates so businesses will benefit from this," he said.
Oil and gas is one of the most capital intensive industries. Upstream oil and gas regulator BPMigas estimates that oil and gas contractors operating in Indonesia will spend $18.9 billion in 2011, up from about $13 billion estimated to be spent this year. Despite the huge finance requirements, Irwan said domestic banks were still capable of providing the capital. "The domestic banks can form consortiums for this purpose," he said. The major interaction between oil and gas companies and domestic banks is currently in transaction facilitation. -PB News
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