Fears of liquidity strains due to state bank loans

Market unease: A farmer trims a cocoa tree at a plantation in Tanjung Rejo, Lampung province, Indonesia. A senior economist flags potential non-performing loans spikes from the proposed cooperative lending policy. — AP

JAKARTA: Indonesia’s state-owned lenders are facing fresh financial risks as President Prabowo Subianto moves forward with a massive plan to establish 70,000 to 80,000 village cooperatives nationwide, funded by a mix of village funds and bank loans.

The initiative, which would channel up to 400 trillion rupiah in funding, is expected to put pressure on state banks Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Tabungan Negara, raising concerns over a potential rise in nonperforming loans (NPLs) and liquidity strains.