In a move aimed at promoting lending to key sectors including downstream industries, housing, and green financing, Bank Indonesia has introduced incentives for banks. These incentives involve a reduction in the mandatory reserve requirement, known as the Minimum Reserve Requirement (GWM), by up to 4%.
Effective from October 1, 2023, the incentive policy will grant banks that extend credit to specific sectors the advantage of lowered GWM. The extent of this reduction will be contingent upon the actual growth of credit within the designated sectors.
Solikin M. Juhro, Head of the Macroprudential Policy Department at Bank Indonesia, highlighted the potential liquidity injection of up to IDR 50 trillion resulting from this policy.
“This will undoubtedly have an impact on lending. If all incentives are fully utilized, it could lead to a credit allocation growth of 0.6-0.7% higher than the initial estimates,” he stated.
Starting in early October, the total incentives will encompass the largest reduction in the GWM ratio, increasing from the previous maximum of 2.8%. The central bank has also narrowed down the sectors eligible for these incentives.
The four targeted business sectors for credit allocation and subsequent GWM reduction incentives are as follows:
- Downstream Mineral and Mining Industries: A reduction of 0.2% if credit growth remains at or below 7%. For growth above 7%, the incentive rises to 0.3%. This sector encompasses metal ore mining, coal and coal briquette production, chemical manufacturing, rubber and plastic products, non-metallic mineral products, basic metals, fabricated metal products, machinery and equipment, and other transport equipment.
- Downstream Non-Mineral Industries: A reduction of 0.6% if credit growth remains at or below 7%. For growth above 7%, the incentive increases to 0.8%. This sector covers various agricultural products, plantations, fisheries, maritime and livestock activities, food and beverage industries, warehousing, and supporting transportation services.
- Housing Sector: A reduction of 0.5% if credit growth remains at or below 7%. For growth above 7%, the incentive rises to 0.6%. This sector includes housing loans, real estate construction, and housing related to public residential complexes.
- Tourism Sector: A reduction of 0.25% if credit growth remains at or below 7%. For growth above 7%, the reduction increases to 0.3%. This sector encompasses accommodation services as well as food and beverage services.
Banks that meet the credit allocation criteria for all four sectors can benefit from a 2% reduction in GWM. Furthermore, an additional 2% reduction in GWM is attainable for banks that satisfy the criteria for macroprudential inclusive financing ratios (RPIM) and green financing.
This strategic policy by Bank Indonesia is expected to stimulate lending to priority sectors, fostering economic growth and prosperity.
