Indonesian Financial Service Authority (FSA) has set the country's banking loans to grow around 11 percent this year - Photo by FSA.

JAKARTA (TheInsiderStories) – Indonesian Financial Service Authority (FSA) has set the country’s banking loans to grow around 11 percent this year with a non-performing loan ratio expected to remain low, the chairman Wimboh Santoso said on Thursday (01/16). The target is above 6.08 percent realization last year, but lower than the 11.8 percent recorded in 2018.

“This optimism was also shared by the banking sector, as reflected in the 2020 bank business plan, which targets a credit expansion of 10 percent. While in the non-bank financial industry, in line with efforts to consolidate its industry, we expect to grow moderately,” Santoso said at the Annual Financial Services Industry 2020 Meeting attended by President Joko Widodo in Jakarta.

In the capital market, regulators see the dovish trend of the world’s central bank will continue and liquidity will flow into the domestic market. For this reason, with the ongoing downward trend in market interest rates, the total emission value is estimated at Rp200 trillion (US$14.29 billion) and an additional 70 new issuers in 2020.

To achieve this target, Santoso explained, the regulator will increase the scale economies of the financial industry through an increase in the minimum nominal capital and accelerated consolidation both conventional and sharia to increase the competitiveness and role of the financial services industry.

“We hope that we will have top five banks in ASEAN and Sharia banks in BOOK IV,” he said, adding other efforts such as narrowing regulatory and supervisory gaps between financial services sectors will become the FSA’s strategic policy this year.

Last year, in the midst of the dynamics of the global economy, the regulator recorded the stability of the financial services sector well maintained, supported by adequate capital and liquidity levels and a maintained risk profile. The intermediary function of financial service institutions has moderated although it remains in line with domestic economic growth, Santoso said.

However, the bank financing through the purchase of securities instruments showed an increase of 15.8 percent year on year or Rp97 trillion and offshore financing from representative offices of foreign banks also reached an increase of 133.6 percent or Rp130.4 trillion. The overall bank financing is estimated to grow by 9.2 percent or Rp549.6 trillion, the chairman noted.

The credit growth was dominated by BUKU IV banks which grew by 7.8 percent, BUKU III by 2.4 percent, BUKU II of 8.4 percent, and BUKU I by 6.4 percent. Based on ownership, state-owned bank loans grew by 8.5 percent, lower than previous year’s 14.1 percent, while private bank loans grew 4.3 percent from 9.4-year earlier, and regional development bank loans grew 10.2 percent from 8.0 percent in 2018.

The credit growth was supported by the construction sector of 14.6 percent followed by the household sector of 6.6 percent. Accordingly, investment loans increased by 13.2 percent, which shows the potential for future real sector growth. The growth was followed by a maintained credit risk profile. The banking gross non-performing loan ratio is relatively low at 2.5 percent or a net 1.2 percent. Banking Capital Adequacy Ratio reached 23.3 percent, sufficient liquidity with LDR 93.6 percent.

Net interest margin is recorded to have fallen to 4.9 percent, from 5.1 percent in 2018 and the average lending rate has decreased persistently from 10.8 percent in 2018 to 10.5 percent last year. The decrease is quite significant amid the policy and deposit interest rates that rose in 2019.

In the capital market, fundraising activities through public offering can be maintained stable at Rp166.8 trillion from Rp166.1 trillion in 2018, with 60 new issuers, the highest issuers’ growth in ASEAN and the seventh in the world. The JCI tends to be stable with lower volatility and an upward trend.

Meanwhile, Bank Indonesia survey indicates that quarterly growth in new loans increased in the fourth quarter (4Q) of 2019 and is predicted to slow down in the first quarter (1Q) of 2020. The growth is reflected in the weighted net balance of new credit demand in 4Q last year of 70.6 percent, higher than 68.3 percent in the previous quarter but lower than 71.7 percent in 4Q of 2018.

In line with forecasts for slowing new credit growth, the central bank said lending policies in the 1Q of 2020 are predicted to be tighter, as indicated by the Lending Standard Index of 12.8 percent, higher than 10.6 percent in the previous quarter.

The Thursday survey results indicate that respondents remained optimistic about credit growth for the whole of 2020. Respondents predicted loan growth in 2020 of 9.4 percent. The optimism was partly driven by respondents’ expectations that the risks of lending and capital adequacy ratios were relatively well maintained, the central bank said.

US$1=Rp14,000

Written by Lexy Nantu, Email: lexy@theinsiderstories.com