Banks set to miss loan growth target

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Wed, 05/07/2008 9:42 AM  |  Business

The banking sector will likely miss its lending growth target this year due to the imminent fuel price hike causing possible weakening in the country's economy, banking experts said Tuesday.

Total lending in the sector is estimated to grow less than the targeted 26 percent, said the Indonesian Banks Association (Perbanas) chairman Sigit Pramono.

"We assumed lending growth was about four times the economic growth. The total lending won't reach 26 percent if the economy grows slower than expected," Sigit said.

Finance Minister Sri Mulyani Indrawati said the economy would probably grow by only 6 percent this year, lower than the 6.4 percent set in the state budget, as the government prepares to cut the ballooning fuel subsidy by raising domestic fuel prices.

The sector's 26 percent loan target is slightly higher than that of Bank Indonesia, which has set its target between 22 and 24 percent.

A fuel price increase will push up both inflation and the BI key interest rate, which could stifle demand for loans from businesses and individuals.

The report of the missed target follows BI's report of encouraging performance in the banking sector -- in almost all indicators -- in the first quarter of the year.

In the period from January to March, the banking sector managed to record a 28.1 percent increase in lending growth from the same period a year earlier.

As of March, the banking sector has lent Rp 1,080.1 trillion (US$117.3 billion), up Rp 34.2 trillion from Rp 1,045.9 trillion in February, BI director of public relations and strategic planning Dyah N.K. Makhijani said.

Nonperforming loans (NPLs) fell from 4.78 percent in February to 4.33 percent, below BI's maximum tolerance of 5 percent.

Third party funds decreased from Rp 1,474.5 trillion to Rp 1,466.2 trillion, raising the loan-to-deposit ratio from 70.9 percent to 73.7 percent.

Sigit said the expected rise in fuel prices might increase the NPL rates as people could not repay their loans.

"Our major concern is that the NPLs index will rise due to the increase in fuel prices."

Also on Tuesday, BI raised its benchmark interest rate from 8 percent to 8.25 percent amid growing inflationary pressures.

BI senior deputy governor Miranda Swaray Goeltom said banks would be able to withstand the increase. (rff)

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