President Prabowo Subianto’s ambitious plan to launch a public credit program with a maximum annual interest rate of five percent has immediately drawn strong reactions from market analysts. Harry Su, Managing Director of Research at Samuel Sekuritas Indonesia, specifically highlighted the potential financial risks for the state-owned banks (BUMN banks) tasked with implementing this directive.
“This is bad news for BUMN banks. We foresee five distinct risks,” Harry conveyed to Katadata on Friday, May 1.
The first risk identified is a significant decline in revenue stemming from narrowing interest margins. Secondly, a rise in the Non-Performing Loan (NPL) ratio is anticipated due to the inherently looser credit policies that would accompany such a program. Thirdly, an increase in loss provisions will inevitably erode profitability, leading to a notable decrease in overall bank profits.
Furthermore, the fourth risk involves a reduction in the banks’ ability to generate profit from equity, signifying a decrease in Return on Equity (ROE). Lastly, the fifth risk points to a decline in company valuation. Harry emphasized this, stating, “Their Price to Book Value will be discounted.”
President Prabowo Subianto unveiled details of this low-interest public credit scheme during his address at the International Labor Day commemoration event at the National Monument (Monas) in Jakarta on May 1. His speech underscored the challenges faced by ordinary citizens.
“Brothers and sisters, for too long, small borrowers have faced incredibly insane interest rates. Is that right? Small people borrowing money can face interest rates of up to 70 percent a year. Is that right?” Prabowo questioned, highlighting the urgency of the situation.
Prabowo subsequently announced that he had already instructed government-owned banks to begin disbursing these low-interest loans. “Soon, we will disburse credit for the people, with a maximum of five percent per year,” he affirmed, setting a clear target for the financial institutions.
The exact implementation strategy for BUMN banks to accommodate this presidential directive remains unclear. This initiative follows previous government criticism regarding the utilization of hundreds of trillions of rupiah in funds previously placed by the government with these same banks. A key question now arises: will this new public credit program become a mandatory scheme to put those substantial funds into circulation?
Summary
President Prabowo Subianto’s proposed public credit program, offering loans with a maximum annual interest rate of five percent, has raised concerns among market analysts. Harry Su of Samuel Sekuritas Indonesia has identified five key financial risks for state-owned banks tasked with implementing this initiative. These risks include reduced revenue due to narrower interest margins, an increase in Non-Performing Loans (NPL) from looser credit policies, and higher loss provisions impacting profitability and Return on Equity (ROE).
The program aims to address the high interest rates faced by small borrowers, which Prabowo described as “insane.” He has instructed government-owned banks to begin disbursing these low-interest loans, though the specific implementation strategy remains unclear. This initiative could potentially involve utilizing substantial government funds previously placed with these banks to stimulate circulation.