Bank Indonesia Studies Relaxation of Loan-to-Value Ratio in Property Sector
Bank Indonesia, the central bank of Indonesia, is studying whether it should relax the loan-to-value (LTV) ratio for the purchase of a house through the house ownership credit scheme (in Indonesian: kredit pemilikan rumah, abbreviated KPR). Furthermore, Bank Indonesia may allow the KPR scheme for the purchase of a second house that is still under construction. These measures would be efforts to boost credit growth, particularly in the property sector, and boost overall economic activity in Indonesia.
In the first quarter of 2016 credit expansion in Indonesia stood at a growth pace of 8.71 percent (y/y), which is a low growth pace for the country that had become used to double-digit figures. Meanwhile, the 75 basis points cut in the central bank's benchmark interest rate (BI rate) in the first three months of the year has not managed to boost credit growth significantly. In the first quarter of 2016 Bank Indonesia cut the BI rate from 7.50 percent to 6.75 percent.
Mirza Adityaswara, Deputy Governor of Bank Indonesia, said the central bank remains committed to prudential monetary policy and therefore the relaxation of the LTV for the purchase of a house will not apply to all financial institutions. Only those banks that have a non-performing loan (NPL) ratio below 5 percent will be allowed to disburse KPR to second-home buyers. Earlier Bank Indonesia Governor Agus Martowardojo already announced Bank Indonesia would seek to loosen its monetary policy, including the property sector. The study that is currently being conducted by Bank Indonesia is expected to be completed before the end of the year.
In mid-2015 Bank Indonesia had already relaxed regulations regarding the LTV in the property sector through Bank Indonesia Regulation No.17/10/PBI/2015. The down payment (DP) requirement for the purchase of a house was cut by 10 percent to 30 percent of the value for conventional banking, while the DP was cut by 5 percent to 20 percent for a house purchase using Islamic finance. This move was conducted in an attempt to boost credit growth. However, it failed to have a significant impact last year, possibly due to the uncertain Indonesian economic environment and weaker purchasing power and consumer confidence.
Jahja Setiaatmadja, President Director of Bank Central Asia (BCA), said KPR disbursement by BCA was indeed supported by the relaxation of the LTV ratio in mid-2015. However, he added that lower KPR lending rates have a bigger impact on KPR disbursement to consumers.
Consumer Credit Indonesia (in IDR trillion):
| Type | 2013 | 2014 | 2015 |
| House Ownership Credit (KPR) | 268.8 | 302.9 | 326.3 |
| Apartment Ownership Credit (KPA) | 12.0 | 13.2 | 13.0 |
| Shop-house Ownership Credit | 25.0 | 26.0 | 26.6 |
| Motor Ownership Credit | 104.5 | 123.2 | 120.6 |
Source: Bisnis Indonesia
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