Banks Reminded of High NPL in Mining Sector

Samarinda (ANTARA News) - Bank Indonesia (BI) representative in East Kalimantan has cautioned banks against extending credits for companies operating in mining sector on high non performing loans (NPL) in the sector.

"They need to be cautious and wary as NPL has exceeded 20 percent in mining sector in the province," Deputy chief of Bank Indonesia representative for East Kalimantan Harry Aginta said here on Friday.

NPL is calculated based on the level of non performing credits in projects in East and North Kalimantan, not on the calculation by local credit providers in the regions as the lenders could come from other regions, he said.

"It is to have the real picture of economy in the two provinces," he said.

He said the NPL is high in the mining sector as a result of declining economy of East Kalimantan on shrinking performance of companies operating in the mining sector.

Mining industry is the economic backbone of East Kalimantan which is one of the the country`s largest producers of coal, oil and gas.

Bank, therefore, need to be more cautious in extending new credit to risky sector of mining industry.

He said high increase in NPL has also been recorded in supporting sectors including transport, construction and property sectors.

East Kalimantan recorded only 0.3 percent growth in credit in the first quarter of 2016 year-on-year with NPL at 5 percent.

The rising NPL could result in a decline in credit supply and investment that would finally cause a drop in the gross regional domestic products of the province.

"We hope the regional administrations would cooperate with the central bank to cut the cycle, otherwise the province could be in for trouble," he said.

Harry, however, said he is still optimistic that despite the economic contraction, the tertiary economy of the province still grew from the preceding quarter.

It is obvious from the result of analysis of potential credits which are dominated by credit for tertiary economy such as credits for the sector of agriculture, government administration, accommodation, trade, individual service, industry and educational service, which recorded positive growth with low risk. (*)