Indonesia to push payment rules amid protest

11-Jun-2012 Intellasia | BusinessWeek | 7:01 AM Print This Post

Indonesia’s central bank will push aside calls to delay rules requiring down payments for new home and vehicle loans, seeking to avoid a property bubble and minimise credit risks.

The new rules will be effective June 15 as planned, Bank Indonesia deputy Governor Muliaman Hadad said yesterday. The minimum down payment will be 30 percent for mortgages and four- wheeled vehicle loans, 25 percent for motorcycles and 20 percent for commercial vehicles, Bank Indonesia said in March. Businesses had asked for a delay to avoid a decline in sales.

“So far we have no plan to postpone the implementation of the rule,” Hadad said via mobile-phone text message in response to questions. “The rule won’t affect purchasing power, it will just make people postpone vehicle or house purchases. We see demand for vehicles and houses remaining strong this year.”

Bank Indonesia has sought to sustain economic growth and contain inflation without raising its benchmark interest rate, which has been steady since a cut in February. Indonesia took steps to reduce excess funds in the economy last month, raising the rates on central bank bills and term deposits to absorb liquidity.

“Bank Indonesia’s new tighter lending regulations will help protect the financial system and safeguard growth against any potential negative shocks,” said Fred Gibson, an associate economist at Moody’s Analytics in Sydney. “Policy makers have become increasingly wary of frivolous lending leading to overleveraged households and property bubbles that could trigger a domestic banking crisis.”

Business Concern

The bank expects the economy to expand 6.3 percent to 6.7 percent this year. Inflation in Southeast Asia’s biggest economy was 4.45 percent in May, slowing for the first time in three months.

Businesses from finance companies to property developers and vehicle retailers say the rules will hurt sales this year.

“National mortgage sales may miss a target of 300,000 units this year after Bank Indonesia implements the rule,” Setyo Maharso, chair of the Indonesian Real Estate Association, said in a phone interview on June 6. The group sent a letter to the central bank seeking a delay, he said.

Indonesian mortgage sales rose 15 percent in 2011 and the association had forecast growth of 15 percent to 18 percent this year before the new rules were unveiled, Maharso said.

Wiwie Kurnia, chair of the Indonesian association of financial services companies, said last month that the rule meant financing could fall 30 percent to 50 percent this year. “To minimise this impact it’s better if the government implements this rule gradually,” he said.

Vehicle Decline

For “productive” vehicles such as buses used for public transportation, the down payment will be 20 percent, and at least 30 percent for other vehicles, according to the central bank.

For motorcycles, the down-payment rule would cut sales this year to about 8.4 million units from a previous target of 9.04 million units, Gunadi Sindhuwinata, chair of the Indonesian Motorcycle Industry Association, said last month in Jakarta.

The Association of Indonesia Automotive Industries, which had previously expected full-year vehicle sales of about 1 million, now sees sales of about 875,000 units, down from 894,000 last year, according to Chair Sudirman Maman Rusdi.

“Because of the down-payment policy, there will be slowdown of about 25 percent in the second half,” he said in a phone interview June 5. The association, which also wrote to Bank Indonesia about the new rules, expects sales of only 875,000 units may force factories to cut overtime work, he said.

About 65 percent of Indonesian vehicles are purchased with financing and an average down payment of 10 percent to 15 percent, the chair has said previously.

Falling Shares

PT Astra International (ASII), Indonesia’s largest automotive retailer, said its vehicle and financing businesses would be impacted by tighter lending rules when it reported first-quarter earnings on April 25. Jakarta-based Astra, which sells Toyota Motor Corp. vehicles and Honda Motor Co. motorcycles, has lost 4.2 percent to 6,800 rupiah since the rules were unveiled on March 16.

PT Indomobil Sukses Internasional Tbk (IMAS), the manufacturer of Suzuki Motor Corp. (7269) cars and motorcycles, lost 6.7 percent in the two days after the rules were announced in Jakarta trading.

“In the short term, this rule will have a negative impact on vehicle companies such as Astra and Indomobil,” said Erwan Teguh, head of research at PT CIMB Securities Indonesia in Jakarta. “In the long term, this is a prudent regulation that needs to be implemented before a bubble happens.” -By Novrida Manurung and Hidayat Setiaji

http://www.businessweek.com/news/2012-06-07/indonesia-to-push-through-down-payment-rules-amid-protest

 


Category: Indonesia

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