Bank loans growing fast, but remain healthy: Bankers

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Mon, 09/08/2008 10:52 AM  |  Headlines

Although bank lending is growing beyond the central bank's expectations, far outstripping the growth of banks' third-party funds, the low rate of nonperforming loans (NPLs) shows lending remains prudent, bankers say.

The August figures show lending grew by 34 percent in the past year, higher than the Bank Indonesia (BI) estimate of 24 percent, BI deputy director of banking research and regulation Wimboh Santoso said last Friday.

Third-party funds grew by about 11 percent.

"Lending remains prudent," Wimboh said, citing a fairly low rate of gross NPLs of about 4 percent.

Bank BNI economist Ryan Kiryanto said the high lending growth was due to greater lending demand from businesspeople seeking expansion, but remained healthy as banks had been careful in channeling loans.

He dismissed suggestions that banks might be insolvent, with growth in lending outpacing that of third party funds.

Ryan said that from 2005 to 2007, third-party funds grew by about 20 percent on average, while lending had a lower growth.

"I think it (what is happening now) is a correction to what happened between 2005 and 2007, with banks channeling more loans than absorbing third-party funds."

The higher than expected economic growth also contributed to the high growth in lending, Ryan said.

In the first semester, the economy grew by 6.3 percent, the Central Statistics Agency (BPS) reported.

According to BI, in the first half of this year, loans to all business sectors rose, excluding the social services sector and the electricity sector.

BI forecasts demand from plantation businesses will remain high in the second half of 2008, a statement echoed by Ryan.

He said the mining and agriculture sectors, particularly outside Java, had absorbed a huge amount of loans between January and June, a trend likely to continue in the second half of 2008.

Anton Gunawan, Bank Danamon chief economist, said the low growth of third-party funds was probably due to low government spending in the first semester.

The government might have chosen to buy BI certificates, instead of depositing its money, resulting in tight liquidity, Anton said.

"Thus, banks had to compete in offering a higher lending rate (to attract third-party funds) amid the tight liquidity," he said.

"However, after the Idul Fitri holiday, I predict the government will start spending for its projects."

Anton forecast lending growth would slow down in the fourth quarter of 2008 -- in line with BI's expectations -- to below 30 percent, but would remain higher than the 24 percent estimated by the central bank.

BI director of banking research and regulation Halim Alamsyah said banks should be careful in channeling loans, taking into consideration their ability to attract third-party funds.

Halim said third-party funds had had low growth as other instruments were offering a higher rate and the government had not spent most of its budget, while, at the same time, "the economy grew more than expected, boosting domestic demand".

The loan-to-deposit ratio -- a ratio comparing lending to third-party funds -- stood at about 79 percent as of the end of August.

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