REPUBLIKA.CO.ID, JAKARTA -- Chief Executive of state-owned lender PT Bank Tabungan Negara Maryono said relaxation in the regulation of loan to value (LTV) ratio for houses would boost demand for property. The new policy will benefit customers as they could buy house with lower down payment.

"With the relaxation in the LTV ratio I think demand would increase for property as the down payment would eventually be smaller," Maryono said here on Friday.

Earlier that day Bank Indonesia revised the LTV regulation after raising its benchmark interest rate from 4.75 percent to 5.25 percent on Friday. Banks are now free to set the down payment to be paid by their clients for buying house with bank credit. Banks are even free to offer a down payment of 0 percent.

Maryono said the 50 basis point increase in the BI 7-day Reverse Repo Rate was compensated for with the relaxation of the LTV regulation that would encourage the people to invest in houses.

"Expansion of the property sector would have impact with an increase in the GDP in general as it would drive the growth of many other economic sectors," he said.

Meanwhile, Kartika Wirjoatmodjo, the Chief Executive of another state lender PT Bank Mandiri said the relaxation of regulation on LTV would also make it easier for developers. "Developers would no longer need large loan capital as they could the proceeds that would come faster from the sales," Kartika said.

Under the old regulation banks were allowed to give credits up to 85 percent of the real value of the house of 70 sq.meter in floor space. The clients, therefore, had to pay a down payment of at least 15 percent. The regulation was to prevent an increase in non performing loans.

The central bank, however, said not all banks are given freedom to set their own LTV ratio. Only those having non performing loan of less than 5 percent are given freedom to set their own LTV ratio, Deputy Governor of Bank Indonesia Erwin Rijanto said, adding the old regulation is still effective on those having NPL of 5 percent or higher.

Bank Indonesia Governor Perry Warjiyo said he was confident the new regulation giving banks freedom to set their own down payment would not result in an increase in NPL to endanger the country's economy.

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