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Banks bet big on coal in Indonesia, bucking global shift away from fossil fuel

JAKARTA — A surge in coal prices is driving a wave of bank loans to miners in Indonesia, the world’s fifth-largest coal producer and top exporter.

By continuing to finance the fossil fuel industry, banks like Citigroup, BNP Paribas and Standard Chartered are making it harder for Indonesia to transition to clean, renewable energy, analysts say.

“Now that there’s a surge in commodity prices, banks are rushing to channel loans to mining companies [to procure] heavy equipment or capital,” Bhima Yudhistira Adinegara, director of the Center of Economic and Law Studies (CELIOS), a Jakarta-based think tank, said in a recent online press conference.

Data from Indonesia’s financial regulator, the OJK, show that lenders channeled 26.83% more money to the country’s mining industry in January 2022 compared to the same period in 2021. The increase is much higher than the year-on-year growth in overall loans of 5.79%.

It comes as global coal prices are hitting record highs, more than $400 per metric ton, as a result of global uncertainty over energy supplies due to the Ukraine conflict and sanctions on Russia, which accounts for around 20% of global thermal coal exports.

Between 2016 and 2021, about $16 billion in credit went to mining companies in Southeast Asia, according to data from finance monitoring platform Forests & Finance. The top five lenders identified in the data set are Citigroup, BNP Paribas, SMBC Group, MUFG, and Standard Chartered.

In Indonesia, the boom in lending is especially pronounced in the province of East Kalimantan, the country’s coal-mining heartland. According to official data, bank loans to the provincial mining industry grew by 74.36% year-on-year in February 2022, compared to 18.87% growth in overall lending.

Made Yoga Sudharma, who heads the East Kalimantan office of banking regulator OJK, said this is because the province’s economy is still dominated by the mining industry. He said financial institutions are bullish on the industry due to rising global coal prices.

“In 2022, this sector has become a prima donna once again, and even enjoying its highest price in the past few years,” Sudharma said as quoted by local media. “That’s why the credit also improves.”

Non-bank lenders are also tapping into the growing demand for credit from miners, channeling 56.61% more in loans, usually for financing the purchase of heavy equipment, in February 2022 compared to the same period of time in 2021, according to the OJK data,