JAKARTA (Reuters) - Indonesia's financial regulator is studying a government proposal to reinstate a COVID-era loan restructuring incentive, one of its commissioners said, as some bankers cautioned about the potential moral hazard created by relaxing prudential rules.
President Joko Widodo this week proposed reinstating a policy which allowed banks to avoid making provisions for bad loans, to help shore up liquidity in the banking system as investors pull funds out of Indonesia and other emerging markets.
The final decision will be taken by the financial services authority, known as the OJK.
"We need to coordinate first with various parties, especially the government, regarding this proposal," Dian Ediana Rae, the regulator's commissioner for the banking sector, told Reuters late on Thursday.
Dian said that when the policy was in operation the OJK had carried out a comprehensive analysis, and had surveyed banks and industries affected by COVID. Now it would check to see if there were impacts of ending the policy it had not expected.
Widodo's proposal, which is planned to last until 2025, came even as data shows a significant decline in restructured loans in recent years, and as the ratio of gross non-performing loans (NPL) for banking sector is around 2%.
The gross NPL ratio was at 2.33% at end April, lower than the average ratio of above 3% during the pandemic, OJK data shows.
The incentive was initially introduced during the COVID pandemic as a means to counter the impact of the sudden economic downturn. It was extended several times before ending in March this year, after the OJK deemed the banking sector had enough liquidity to cover the losses from the restructured loans.
Some bankers said reinstating the policy could create a moral hazard by reducing the impact on a bank if a risky loan soured, and noted non-performing loans were relatively low."It's full of moral hazard risk, because there is no specific request from the industry for the relaxation," banker Taswin Zakaria said, adding that lending is currently growing which suggested liquidity was not a pressing issue.
Credit growth was 12.15% year-on-year in May, above the central bank's target range for 2024 of 10% to 12%.
Taswin, who stepped down as president director for Maybank Indonesia earlier this year, said that before the measure ended in March most private banks already had sufficient provisions set aside to cover losses on restructured loans.
The CEO of Bank CIMB Niaga Lani Darmawan also said banks had enough liquidity at the moment, but said the OJK was best placed to decide on reinstating the policy as it had the best view of restructured loans across the financial sector.Indonesian Banks Association secretary general Anika Faisal was quoted on news website Detik.com as saying businesses that were having difficulties should be helped even though the pandemic has ended.
(Reporting by Stefanno Sulaiman; Editing by John Mair)
