INDONESIA - BANKING - Shariah Included in Indonesian Bank Rule

www.thejakartaglobe.com - The country’s central bank will soon issue a regulation requiring Shariah banks to toughen down payments on housing and automotive loans, a deputy governor said on Sunday.

The requirement will be similar to the implementation of the loan-to-value level applied to conventional lenders for housing and vehicle loans issued on March 15 and took effect on June 15.

Under the new regulation, down payments of 25 percent for two-wheeled vehicles are required and 30 percent for four-wheeled vehicles. There were no rules before, but sellers often asked for about 15 percent. Loans typically account for 70 percent of car purchases in Indonesia.

Shariah lenders were excluded from the regulation as in Islamic finance, lending does not require down payments.   (source)


But Halim Alamsyah, a deputy governor at Bank Indonesia, said on Sunday that the first installment of Islamic loans for the automotive sector would be regulated.

“We have decided that the first installment of Shariah credit for goods without down payments will be regulated,” he said.

He did not specify the down payment size, despite saying the upcoming regulation was a precaution against a potential increase in non-performing loans amid the ongoing threat of global financial crisis.

Bank Indonesia has sent signals to the market that it is cautious that credit expansion could grow too quickly in the future and may exceed local lenders’ financing capacity.

The bank was worried of a bubble forming in the sector. Shariah banks comply with Islamic requirements, such as banning interest payments, providing no financing for alcohol and sharing profit and risks with customers.

As Bank Indonesia did not include Shariah lenders in the down-payment regulation, many banks are bolstering their Shariah financing arms to avoid it as much as possible, exploiting a loophole in the rules.

“The LTV and down-payment regulation [on Shariah lenders] needs to be made effective soon. More meetings, however, are still needed,” Halim said on Sunday.

Automotive retailers have posted record car sales for July despite the introduction a month earlier of new rules requiring purchasers to make higher down payments, industry data show.

Car sales in July hit 103,219 units, beating the previous monthly sales record of 101,743 units in June last year, data from the Association of Indonesian Automotive Manufacturers (Gaikindo) showed.

The July figure was 16 percent higher than that for the same month in 2011 when 89,056 vehicles were sold. The latest figure brought total sales for this year to 638,264 units, up 26 percent from the same January-July period in 2011.

Gaikindo chairman Sudirman Maman Rusdi said the increase in sales last month was due to customers anticipating Idul Fitri, which marks the end of the Muslim fasting month.

Car sales in Indonesia are forecast to reach 875,000 units this year, similar to the figure last year but well below the original target of 1 million.

Additional reporting from Antara

Source: http://www.thejakartaglobe.com/business/shariah-included-in-indonesian-bank-rule/537844  - Aug 13, 2012