Banks not likely to hit BI growth target

Banks will have to accelerate their lending growth during the next two months in order to meet the central bank’s initial full-year growth target for overall lending of between 22 and 24 percent, analysts have said.

Bank Indonesia (BI) latest data showed that up to the first week of October, total loans provided by the banks rose 14.68 percent to Rp 1,640.36 trillion (US$183.7 billion) from Rp 1,437 trillion in 2009.

With the slow growth rate recorded during the first nine months, analysts said they were pessimistic that the BI’s full lending growth target could be achieved.

“It will be hard to meet the central bank’s target unless the 15 banks which control up to 85 percent of banking assets push their loan disbursements in the remaining three months,” said Eric Sugandi, an economist at Standard Chartered Bank Indonesia.

BI governor Darmin Nasution said that although the overall growth in lending was relatively lower than projected, the growth in working capital lending by banks was higher, indicating that recovery in business activities was well on track.

According to BI data, the growth in working capital loans in the country has begun to catch up with consumer lending, indicating that businesses have begun to expand again after a slowdown in 2009

The central bank’s data showed during the period between January to August this year, working capital loan growth reached 15.7 percent, more than the 14.7 percent recorded for consumer loans. Meanwhile investment lending grew by 9.3 percent up to August this year.

Analysts previously expressed concern about overall loan growth in the first quarter during which consumer loans continued to grow faster than working capital loans, meaning that loans were mainly disbursed for people to consume and not to produce.

Working capital loans disbursed were perceived as more important due to their multiplier effect in support of the country’s economic growth. More working capital loans mean more enterprises have borrowed money to run and expand their businesses.

Indonesia is a domestic consumption-driven economy, with more than 230 million people spread across the archipelago consuming more goods after the country successfully sailed through the US-led global financial crisis in 2008.

Danareksa Research Institute’s head of research, Purbaya Yudhi Sadewa, told The Jakarta Post that consumer spending would continue to be a major driver of economic growth, despite faster growth in working capital loans.

He said that consumer spending would be even higher this year as the six percent economic growth achieved during the first nine months of this year would result in increased purchasing power in the hands of consumers.

“Consumption is the first thing that grows when a country has passed through an economic slowdown. As demand surges, companies will have to increase supply, which will in turn further increase their business activities,” he said.

Until August, consumer loans contributed 30.6 percent of total outstanding loans, working capital loans contributed 49.6 percent and investment lending stood at 19.99 percent of the total portfolio, as shown by BI data.

The central bank is optimistic that with the current lending growth, the government’s target to book an overall economic growth rate of 6 percent would be achieved. (est)