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JAKARTA (TheInsiderStories) – Indonesia’s economy will continue to face severe challenges in 2018, not only come from within the country itself but as well from a poor global economic environment.  Entering a political year in 2018, the Financial Services Authority (FSA) is optimistic it will see a revival of both the global and domestic economies, to support the banks in their quest to achieve double-digit growth.

Industrial commodity nutrients are predicted to increase, although the prices of agricultural commodities tend to be stable. Crude oil prices are expected to edge upwards from $53 to $56 per barrel by 2018.

‘This is in line with the growth of demand amid a steadily decline in the supply of oil. The World Bank has even projected crude oil prices could reach $70 per barrel by 2030. Coal also bumped upward 17 per cent in the third quarter of 2017,’ observed FSA Deputy Commissioner Imansyah last week.

Meanwhile, setting a conservative loan target is likely to become a correct option for Jahja Setiaatmadja, President Director of PT Bank Central Asia Tbk. The biggest private lender sees growth in 2018 in a range of 8-10 per cent, a casualty of unpredictable economic momentum next year.

‘We still perceive confusion in public demand, a weakening or something more,’ said Setidaatmadja.

Indonesia’s recent credit demand condition has signaled a mixed response for the banking sector’s future in 2018, especially in term of loan growth projection.

Despite eight interest rate cuts since the beginning of 2016, including back-to-back reductions in August and September, demand for loans remains feeble, and economic growth continues to disappoint.

Domestic banking loan growth has been anemic this year, with local lenders only being able to boost it to 8.18 per cent by the end of October, from the same month a year ago.

Gadjah Mada University Economist Tony Prasetiantono pointed to lackluster credit growth as evidence that many banks are more urgently concerned with suppressing nonperforming loans (NPL) and managing asset quality than hunting for new business.

After dropping to as low as 1.8 per cent in December 2013, the NPL ratio of banks steadily rose to over 3 per cent last year, forcing several banks to carry out consolidation before they disbursing further loans.

‘They’re now very careful in disbursing loans to avoid new bad borrowers,’ he told TheInsiderStories Wednesday (29/11).

Nevertheless, Bank Indonesia (BI) has prepared numerous policies to spur the Indonesian economy. BI is preparing new rules to ensure the banks are able to manage liquidity better, to boost loan growth to 10-12 per cent next year.

BI Governor Agus Martowardojo reported that the central bank will start using loan-to-value ratio rules – limiting how much a lender could extend on the back of customer assets – to expedite loan growth significantly.

To encourage banks to give loans to the private sector, Bank Indonesia will implement a macro-prudential intermediation ratio. The new measure will assess corporate debt purchases in evaluating bank loan disbursement.

The central bank will also strive to further ease its reserve requirement rules by adjusting ratios and extending the time required for banks to maintain total Rupiah deposits with the central bank.

Currently, a conventional lender needs to keep a minimum of five per cent of its Rupiah deposits at Bank Indonesia every day. The lender also needs to ensure such deposits make up on average 6.5 per cent of its total deposits every two weeks.

These rules had already been relaxed earlier this year. Before that, banks also had to maintain a 6.5 per cent daily reserve.

The International Monetary Fund (IMF) in its latest article stated Indonesian financial policies should remain focused on safeguarding financial stability. The banking system is well-capitalized, profitability is high, and system-wide liquidity remains ample.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

 

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