Last March, President Joko Widodo called on the bankers to be more aggressive in providing loans as a move to help accelerate the country’s economic growth, which has been growing below expectation in the past three years, despite efforts undertaken by the government to improve the investment climate.
The President made the call given the fact that the banking loan growth has been slow during first quarter of this year. Despite positive signals from the central bank to maintain the interest rates in the comfortable level, the policy was not followed by a rise in banking loan. This has raised questions among the country’s policymakers as well as the President.
“If I was given a target of 9-12 per cent, I would go for the 12 per cent target. Again, the biggest risk is if we are not taking a bold step to take risk,” President Widodo told the bankers at the State Palace.
The President realized that banks are required to be operating prudently. However, it does not mean that banks just stay in the comfort zone.
The FSA said, the financing credit grew 5.19 percent in June 2018, or down 6.3 percent from May 2018. Life and general insurance or reinsurance premiums grew 29.4 percent (year on year) and 15.9 (year on year), respectively.
“The risk of financial institution including credit, market, and liquidity are maintained at manageable levels amid the sentiments that pressure domestic financial market,” FSA said in a press release.
The banking sector recorded 2.67 percent in the gross non-performing loan (NPL) in June 2018, a 2.79 percent down from 2.79 in May 2018. Meanwhile, the NPL ratio of financing sector recorded 3.15 percent, up from 3.12 percent in May 2018.
In addition, the financial service institution is also maintained with a baking’s capital adequacy ratio of 21.91 percent and risk-based capital of 333 percent in general insurance and 455 percent in life insurance.
The condition of Indonesia’s financial sector was due to the negative sentiments from trade war threat and currency war, but FSA stated Indonesia’s financial sector and the liquidity are in maintain condition.
In addition, the global economy is also facing the challenge of liquidity depletion as the normalization of the Fed‘s policies and US Personal Consumption Expenditure inflation in June 2018 has reached the target of 2 percent. This development is causing pressure on global financial markets, especially in emerging markets.
FSA committed to monitor the potential risks due to global economic condition, its impact on the financial market liquidity, and the performance of the national financial service sector.