Banks Bet Big on Coal in Indonesia, Bucking Global Shift Away from Fossil Fuel

Environmental News from Asia: 

  • Loans from banks and leasing firms to coal-mining companies in Indonesia are increasing on the back of soaring global coal prices.
  • Analysts say financial institutions are capitalizing on the high demand for capital from miners, effectively helping keep the fossil fuel industry afloat.
  • The increase in lending to coal miners in Indonesia bucks a global trend that has seen financial institutions and investors increasingly avoid coal and other fossil fuel industries because of their environmental and climate impacts.
  • Energy policy experts say that besides risking reputational damage, the banks financing Indonesia’s current coal boom could be left holding a lot of bad debt once the cycle inevitably turns into a bust.

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.

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Source: Mongabay

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