Indonesian banking loan expansion is set to recover this year after experiencing a significant slowdown in 2019, with completion of key infrastructure projects and the government's continuing structural reform providing a supportive environment for loan demand to pick up.
The Financial Services Authority (OJK) has projected that credit will grow between 10 and 12 percent this year, almost double last year's 6.08 percent. The projection is more optimistic than the 10 percent growth most lenders put in their business plan (RBB).
In 2019, banking credit growth was dominated by the construction and household consumption sectors, each of which expanded by 15 percent. Investment loans also increased by 13 percent, showing potential for future real sector growth.
The government and Bank Indonesia (BI), the central bank, have projected an economic growth of 5.3 percent this year.
BI had cut its benchmark interest rate four times since July to stimulate credit growth, before pausing in November and December. However, the impact of the cuts on lending growth has been limited and economic growth remains sluggish.
Some economists have argued that the central bank may continue cutting the interest rate this year to boost economic growth, as a limited tax base caps the government's ability to use fiscal policy as a stimulus.
The OJK said the financial services sector has remained stable, supported by adequate capital and liquidity levels and an unchanging risk profile.
Banks' capital adequacy ratio (CAR) was at 23 percent last year, well above the 8 percent requirement. Lenders also had sufficient liquidity with a loan to deposit ratio of 94 percent.
Their gross non-performing loan (NPL) ratio was at 2.5 percent in 2019, well below the 5 percent standard.
Net interest margin (NIM) was down to 4.9 percent, from 5.1 percent in 2018 as the average loan interest rate fell to 10.5 percent at the end of 2019 from 10.8 percent a year earlier
(source: The Jakarta Globe)