JAKARTA (TheInsiderStories) – Bank Indonesia’s (BI) latest banking survey indicated that commercial lenders saw sluggish new loan growth in the first quarter of 2018, reflecting inefficient intermediate function of banks in the country.
The survey, which based on samples from 40 large commercial lenders, indicated that lenders estimated new loans were expected to have grown by 8 percent the first quarter of this year from the same period a year ago. This means loan growth has slowed compared to 8.2 percent’s pace in the corresponding period last year.
BI’s survey said the sluggish in new loan growth was due to slowing customer financing needs at the beginning of the year. Meanwhile, from corporate clients, typically they have fulfilled spending their capital expenditure in December.
However, from the financial system point of view, this trend shows a sluggish intermediary role of banks.
On the other spectrum of banking system indicators, the survey indicates banks’ Capital Adequacy Ratio (CAR) likely to remains strong at 23.2 per cent, and there is ample of liquidity, with commercial lenders’ liquidity ratio stood at 23.2 per cent. Meanwhile, non-performing loans (NPL) increased slightly in January 2018 to 2.9 per cent (gross) or 1.3 per cent (net).
In addition to weak demand for new loans, the cyclical downtrend of bank intermediation at the beginning of each year also undermined credit growth. Despite muted loan growth, economic financing through the capital market, including initial public offerings (IPO) and rights issues, corporate bonds and medium-term notes (MTN), soared 99.8 per cent in January 2018 in line with financial market deepening efforts.
In contrast, deposit growth slowed from 9.4 per cent (yoy) to 8.4 per cent (yoy) in January 2018.
Nevertheless, based on the current economic improvements and progress in terms of corporate and banking sector consolidation, BI predicts credit and deposit growth to accelerate in 2018 in the 10-12 per cent and 9-11 per cent ranges respectively.
Indonesia’s central bank is widely expected to keep its benchmark interest rate unchanged on Thursday, as it continues to focus on stability and growth as U.S. rates rise.
Central bank officials have repeatedly said room for further easing of monetary policy is limited, but this has been helped in part by a lack of inflationary pressures.
BI has held interest rates steady for the past six meetings. It surprised markets by cutting the rate by 25 basis points last August and again in September, in efforts to boost lending and business activity.
Last week Indonesian President Joko Widodo had gathered key directors and commissioners of four state-owned banks, 27 regional development banks, 75 private banks, and eight branches of foreign banks at the Presidential Palace in Jakarta and urged them to leave their “comfort zone” and become more willing to boost credit growth even though it would come at the risk of rising non-performing loans and a lower capital adequacy ratio, both of which are at safe levels currently.
Rising credit growth would boost economic activity, hence helping Indonesia to reach the government’s GDP growth target of 5.4 percent (y/y) in 2018.