Indonesia Eximbank has agreed to provide a guarantee for export credits provided by Permata Bank, as part of its program to boost financing for export-oriented companies.
Under the agreement signed in Jakarta on Friday, Indonesia Eximbank, also known as the Indonesian Export Financing Institution (LPEI), will, in the initial stage, guarantee 50 percent of Permata Bank’s loans allocated to export-oriented companies.
Sinthya Roesly, the president of Indonesia Eximbank, said the agreement to partly guarantee Permata’s export credit was part of Indonesia Eximbank’s mission to provide financial support for the country’s export-oriented companies. In addition to the loan guarantee, the government-owned financing agency also has the task of providing export credit.
“We were given a mandate by the government to provide export loans provided by local banks to local companies,” Sinthya said during the signing of the cooperation agreement.
Under Law No.2/2009 on export financing, Indonesia Eximbank has the duty to guarantee other banks’ loans that are given specifically to Indonesian export-orientated companies. However, banks that want to receive a guarantee from Indonesia Eximbank must fulfill a number of requirements such as having a risk-weighted asset ratio of 0 percent and holding liquid collateral from its borrowers.
Banks must also omit their legal lending limit (BMPK) for loans given to exporting companies for as long as they are guaranteed by Indonesia Eximbank.
“We welcome other banks to join a similar agreement in the future. Obviously, the prospective banks must fulfill the requirements set by us to minimize default risks,” Sinthya told The Jakarta Post.
Furthermore, Permata’s credit categories that will be guaranteed by Indonesia Eximbank are working capital and investment loans that will be used to support exports.
Permata’s chief executive officer Ridha Wirakusumah said an export loan guarantee provided by Indonesia Eximbank was quite important in helping local companies take advantage of export opportunities that have arisen from the escalation of the trade war between the United States and China.
Indonesian companies, for example, could fill gaps in the US market left by Chinese products, or replace US goods in the Chinese market.
In addition, amid the US-China trade war, countries in continents such as Africa and South America will start looking for more affordable commodities from other manufacturing juggernauts such as Indonesia, said Ridha on Friday.
Ridha was also of the opinion that a majority of Indonesian banks were supportive of the government’s aspiration to increase exports.
However, many local banks are financially unable to approve the relatively large loans required by export-orientated companies, as the amount of credit required goes beyond local banks’ BMPK.
“Many medium-sized to large export companies need dozens of billions of rupiah annually to finance their operations or to purchase machinery, inventory or property. Not every bank can provide such sizable loans,” said Ridha. The credit guarantee contract between Indonesia Eximbank and Permata will last for one year and is renewable and subject to change. (bry)