Can Indonesian Banks help boost economic growth?

"Bankers must work harder, be more innovative and creative in giving out loans this year without sacrificing the prudential lending policies," Indonesia’s central bank Governor Burhanuddin Abdullah said in a dinner speech to bank executives at Bank Indonesia's headquarters in Jakarta recently.

In a bid to boost consumer spending and investment, Bank Indonesia has already cut borrowing costs eight times since last May. The Indonesian government is expecting growth to hit 6.3 percent this year, up from 5.6 percent according to Boediono, the coordinating Minister for the Economy.

Bank Indonesia last year forecasted 5.7 percent to 6.3 percent economic growth in 2007. Total outstanding loans of Indonesian banks at the end of October were 796.1 trillion rupiah ($86.9 billion), compared with 787.8 trillion rupiah the previous month, according to central bank data. Non-performing loans increased to 8.8 percent in October, from 8.5 percent a month earlier.

Abdullah emphasized that Indonesia's 131 commercial lenders must increase lending to companies and individuals to help push the economy. "The main challenge in 2007 is to increase an intermediary role of banks that's needed to help the economy grow faster."

So will the Indonesian banks step up to the challenge? If so, what are the steps they can take to increase loans? What else can the government do to push the economy?

Let us know what you think.