I

n another sign of the worsening impact of the global economic slowdown, Indonesia's finan-cing firms are probably heading to be hit hardest.

The Bank Indonesia's benchmark interest rate is on a declining trend, with the latest cut putting the rate at 8.75 percent.

Despite likely continued easing of the central bank's benchmark interest rate, the financing industry still faces gloomy prospects this year with loan volume forecast to decline by 26 percent from a year earlier.

The Indonesian Financing Company Association (APPI) forecasts its members will disburse a total of around Rp 100 trillion (US$9 billion) worth of loans this year, down from an estimated Rp 135 trillion last year.

"From now on, the problem for us is on the demand side," APPI chairman Wiwie Kurnia told The Jakarta Post Friday.

Performance of financing companies normally trails heavily behind demand for cars and motorcycles, which is expected to plunge as people's purchasing power is eroded by the impact of the global economic downturn, which is hitting international trade activities.

Last year, 42 percent of finance company loans went to motorcycle buyers, while another 42 percent went to automobiles and 16 percent to heavy machines.

The APPI forecasts that sales of motorcycles and cars will drop by 30 percent and heavy machines by between 40 and 50 percent.

The Indonesian Automotive Industry Association (Gaikindo) forecasts that sales of cars, trucks and vans will decline to 405,000 units from 605,000 last year, while the Indonesian Motorcycle Industry Association (AISI) sees a drop to 4.2 million sales from 6 million estimated for last year.

By the end of November last year, Gaikindo recorded 568,152 cars sold while AISI members had sold 5,813,916 motorcycles.

Wiwie was convinced that the cut in Bank Indonesia (BI) benchmark interest rate by 50 basis points earlier this month would not have a considerable impact until the second semester of this year when purchasing power recovery is expected to pick up.

"Financing companies may only start lowering their interest rates in the next one or two months ahead," he said.

Financing companies currently offer customers interest rates of between 18 and 20 percent, according to the association.

More than 80 percent of Indonesian consumers purchase motor vehicles through financing firms, with most of them now believed to be in some difficulties in paying up on their monthly instalments.

In a bid to avoid potentially bad loans, PT Federal International Finance (FIF), the country's largest financing firm for motorcycle purchases, will tend to focus its loan disbursements on fixed-income clients, including teachers and government officials.

It said this measure would help maintain the ratio of non-performing loans (NPL) at a fairly manageable level of 3 percent.

The company announced it had failed to reach a target to finance more than one million motorcycles last year after demand dropped drastically during the last three months of the year.

"We only financed some 900,000 motorcycles last year," FIF vice president director Thaufik Noograha told the Post.

He said FIF was targeting to finance 750,000 to 840,000 motorcycles this year.

"Despite lower fuel prices, there has yet to be any significant impact (for the financing industry). This is because people's purchasing power is getting weaker," he said.

Smaller rival PT Wahana Ottomitra Multiartha (WOM) Multifinance, the country's third largest financing company for motorcycle, also predicts a bleak outlook for the industry.

The company estimates lending to decline by 10 percent this year to around Rp 4.5 trillion from Rp 5 trillion last year.

"Loan applications dropped significantly during the last quarter (of last year)," WOM president director Suwandi Wiratno told the Post over the weekend.

WOM is the financing arm of Bank Internasional Indonesia (BII), which is controlled by Malaysian-based Maybank.

"And the trend will likely continue this year. It seems that we are going to focus again on Java-based customers," Suwandi said.

More than 60 percent of WOM and FIF customers are located in Java, the country's most populous island and the center of economic activities.

Last year, most financing companies aggressively expanded to commodity-rich areas outside Java to profit from the commodity boom. But as the global prices of commodities plunged towards the end of last year, business turned down as well.

As for vehicle financing, PT Astra Sedaya Finance (ASF), another subsidiary of Astra, forecast lending to decline by 15 percent to Rp 10.1 trillion by the end of this year from Rp 12 trillion last year.

The industry disbursed a total of Rp 132.8 trillion in financing during the first nine months of last year.