(Bloomberg) -- Indonesia’s lenders are pushing back against central bank pressure to further lower interest rates for their customers, a step policy makers believe can help pull the economy out of recession.The banks say the real problem is that people don’t want to borrow in the first place. Loans shrank in October for the first time on record, down 0.47% from the year-earlier period. Bank Indonesia Governor Perry Warjiyo said the contraction was due to lenders’ risk-averse attitude and could have been avoided if they had lowered rates for customers in line with central bank easing.“At a time like now, people just aren’t looking to obtain loans because their activities are limited anyway,” said Haru Koesmahargyo, finance director at state-owned PT Bank Rakyat Indonesia, which has the biggest credit portfolio among Indonesian banks at 935.3 trillion rupiah ($66 billion).Banks’ reluctance to cut borrowing costs poses a hurdle for President Joko Widodo’s plan to lift Southeast Asia’s largest economy out of its first recession in more than two decades. People are limiting their spending as unemployment surges to a nine-year high and businesses are delaying investments as the country grapples with Southeast Asia’s worst coronavirus outbreak, at more than 500,000 total cases.While the central bank has cut its key rate by 225 basis points since June 2019 to a record-low 3.75%, PT Bank Central Asia, the largest lender by market value, has eased rates for customers by only about 100 basis points during the same period. Bank Rakyat has cut borrowing costs by 25 to 50 basis points this year, short of the 125 basis points the monetary authority has cut policy rates in 2020.“Why haven’t loan rates declined yet? Because of risk perception by banks,” Warjiyo said at a Nov. 19 monetary policy briefing. The central bank is meeting with lenders and businesses to boost lending, with sectors including food and beverages, telecommunications and basic minerals likely to drive the demand, he said Tuesday.Bank Rakyat shares were among the biggest laggard in Indonesia’s stock benchmark on Thursday, declining 0.9% as of midday break, while the Jakarta Composite Index surged 0.7%. BCA gained 0.2%.Loan RestructuringBanks have reason for being hesitant to lend: Non-performing loans have stayed above 3% since May as individuals and companies struggle to repay debts, which could put pressure on banks’ balance sheets.The Financial Services Authority said it’s only a matter of time until lending rates drop; the main issue holding banks back is ongoing loan restructuring, according to Chairman Wimboh Santoso. More than 932 trillion rupiah of loans had been restructured this year as of Oct. 26, equivalent to about 17% of total borrowing.A few sectors are already showing early signs of recovery, including insurance, chemicals and pharmaceuticals, and the FSA will push for more credit growth from those industries, it said in a statement Thursday.Bank Rakyat is putting loan growth on the back burner to focus on improving the quality of current loans, Koesmahargyo said. It’s targeting loan growth of 4%-5% this year, compared with 8.3% in 2019.“Credit and rates aren’t the key issue now,” according to BCA President Director Jahja Setiaatmadja, who expects the bank’s loans in 2020 to remain the same as 2019. “If we want to boost the economy, just use government subsidies to directly support the industries, instead of relying on loans.”(Updates with FSA statement in 10th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.