Bank Mandiri, the country’s largest lender by assets, disbursed Rp 51.9 trillion ($4.4 billion) in the period from January to October this year to the palm oil sector alone, up 7.2 percent from the same period a year ago. The bank seeks even more opportunities to lend to the palm oil industry next year.
Fransisca Mok, Mandiri’s corporate banking director, said that palm oil demand in the future will increase because apart from its usage in the food and chemical industry, the oil can be used to produce biofuel. Next year, the government will require a minimum biofuel content in diesel of 10 percent, up from the current level of 3-10 percent. For the power industry, the minimum will double to 20 percent.
Palm oil’s use to produce biofuel is condemned by environmentalists, who note that more carbon emissions result from deforestation and peat fires caused by clearing for palm oil than are produced by the entire global transport sector.
“When a hectare of primary rainforest is cleared and replaced with oil palms, this releases around 65 times as much carbon into the atmosphere as can be saved annually by using the palm oil as a biofuel,” according to a statement published by the Sumatran Orangutan Society, which also highlights the industry’s contribution to orangutan habitat destruction.
Mandiri, however, sees great financial opportunity in the industry.
“We are confident that the Indonesian palm oil industry will continue to grow well, as we have been observing this business for quite some time now,” Fransisca said in a statement on Thursday. She was attending Indonesian Palm Oil Conference 2013 in Bandung, West Java, which runs until Saturday.
Francsisca said while most of Mandiri’s loans went to large palm oil companies, the lender also disbursed sizeable loans to plasma schemes, a government program that aims to assist smallholder farmers. In the first 10 months of this year, Mandiri disbursed Rp 4.5 trillion to 137,600 small farmers who manage a total of 263,000 hectares of land.
The lender also provided Rp 4.5 trillion in loans to palm oil refineries and oleochemical producers, and Rp 5.7 trillion to palm-oil related traders.
Despite Bank Indonesia’s warnings of higher interest rates next year, palm oil companies keep borrowing to expand operations in anticipation of better palm oil prices and more favorable weather. Plantation firm Sampoerna Agro, controlled by the Sampoerna Group, said on Wednesday that it has acquired Rp 650 billion in bank loans, as part of its Rp 1 trillion expansion plan next year.
The Indonesian Palm Oil Producers Association (Gapki) said investment of Rp 300 trillion would be required by 2020 to replace a further 3 million hectares of forest with new palm oil plantations and boost production to 40 million tons per annum from the current 27 million tons.