The government will restore the SME loan restructuring program – Regulations

The government plans to revive a loan restructuring program introduced during COVID to protect small and medium-sized enterprises (SMEs) from default, especially for loans granted under the state-subsidized microloan program (KUR).

Coordinating Economic Affairs Minister Airlangga Hartarto announced plans to revive the program on June 24, citing a request from President Joko “Jokowi” Widodo. The program was previously extended three times before expiring at the end of March this year.

It allows banks to reclassify loans that have deteriorated as a result of the economic crisis caused by the pandemic. Loans that would normally be considered “nonperforming” can instead be recorded as “nonperforming loans” (LaR), helping banks maintain artificially low nonperforming loan (NPL) rates.

“This would reduce the burden on local banks that have to make provisions for the rising risk of bad loans, especially due to the KUR,” Airlangga told the State Palace.

Read also: Jokowi wants to reactivate the loan restructuring program

Etikah Karyani Suwondo, a senior researcher at the Center for Economic Reform (CORE), said many small and medium-sized enterprises (SMEs) are struggling to repay their loans due to limited market access following the pandemic and high interest rates.

She noted that the NPL ratio for SME loans rose to 4.26% in April, from 3.98% the previous month when the scheme was still in force.

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