Indonesia's SME loan requirement may hurt foreign banks

Foreign banks could reel from Indonesia's new requirement to lend 20% to SMEs.

They fear it will create an uneven playing field since some of them cater to specific business segments.

Foreign banks operating in Indonesia include Citibank, HSBC and Standard Chartered.

Fauzi Ichsan, an economist with the UK-based Standard Chartered, noted that most foreign banks in Indonesia disbursed less than 10 percent of their loan values to SMEs.

He called the requirement a populist policy, saying it was implemented by Bank of Indonesia under pressure from the House of Representatives.

Ichsan added that forcing banks with weak micro loans to up their SME lending portfolios would subsequently push up their non-performing loan ratios.

BI spokesman Difi Johansyah explained that a clause would stipulate that the rule may also be met by lending to export-related industries.

The rationale was that foreign banks operating in Indonesia need to contribute more to its economy by lending to productive sectors.

“We do not want our foreign banks to channel credit into consumption and retail businesses only,” Difi said.

"These foreign banks are making money here, so they must think about our national interests as well.”

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