Economists Remind Danger Of Boosting Banking Credit In The Middle Of A Pandemic

JAKARTA - Economists have asked the government not to encourage banks to aggressively boost lending amid the COVID-19 pandemic. The reason is, this can increase the risk of bad credit.

Credit rates are indeed low at the single digit level, which is only 1.04 percent based on Bank Indonesia data. However, it is not wise to expect significant growth in the midst of current conditions.

Indonesian Center of Reform on Economics (CORE) economist Piter Abdullah explained that currently the business sector has not been operating optimally during the COVID-19 pandemic due to restrictions on socio-economic activities. Therefore, it is not recommended to encourage credit growth.

"Banks should not be encouraged to increase credit growth in the midst of a pandemic. Because many companies have limited operations, they cannot carry out normal business activities," he said in a virtual discussion, Tuesday, September 22.

In addition, said Piter, consumer demand is still limited amid the COVID-19 pandemic. This condition also affects the business sector to reduce its production. So that in the end it will hold back the demand for credit from the business world to banks.

Piter explained, if forced to boost credit in the midst of the current COVID-19 pandemic, the credit risk or non-performing loan (NPL) ratio has the potential to increase.

For your information, data from the Financial Services Authority (OJK) recorded a banking NPL of 3.22 percent in July 2020. This position increased from the previous month which was only 3.11 percent.

"They (the business sector) experience cash flow problems. If this is hit by credit, then the bank could experience an increase in credit risk," he said.

Furthermore, Piter said, OJK's efforts to provide restructuring of bank loans were very helpful amid the economic downturn due to COVID-19. Not only for debtors, this easing also helps manage NPL risk in banks.