Foreign banks fare better

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Indonesia’s 120 commercial banks reaped Rp 36.4 trillion (US$3.85 billion) in net profits in the first five months of this year, an increase of 23.4 percent on the same period last year, as they benefited from strong loan growth.

Ten foreign banks operating in Indonesia, which form part of the nation’s commercial banking system, saw even higher increases in their bottom lines, growing by 33.3 percent to Rp 2.4 trillion in the January-May period, thanks to loan growth of 29.2 percent to an unprecedented Rp 160.1 trillion.

Overall, commercial bank lending grew 26.6 percent to Rp 2,403.7 trillion in May from last year, according to Bank Indonesia’s (BI) data published on Friday. Banks had planned to grow their lending by about 24 percent this year, similar to last year’s achievement.

“Generally, loan growth remains quite high, but it may slow down a little bit in the second half of this year,” PT Bank Central Asia (BCA) chief executive officer Jahja Setiaatmadja told The Jakarta Post.

As of June this year, borrowers are required to make down-payments of between 20 and 30 percent for automotive and housing purchases. BI and non-bank financial institutions regulator Bapepam-LK issued the regulation to put the brake on fast-growing consumer loans to prevent the sector from overheating.

PT Bank Mandiri chief financial officer Pahala N. Masury said that the bank’s loan growth reached about 28 percent in the first six months of this year from a year earlier, supported by demand for credit from micro-, small- and medium-sized enterprises.

“With such loan growth, net interest income also grows as well,” Pahala told the Post.

Commercial banks’ overall net interest income grew 16.3 percent to Rp 80.1 trillion in May on the same period a year earlier, despite fears that the central bank’s lowest ever benchmark interest rate would squeeze banks’ earnings.

BI has cut the rate—which is used as a reference for banks to set lending rates—three times by a total of 100 basis points in the past year to 5.75 percent, hoping to provide low borrowing costs for business expansion in the domestic consumption-driven economy.

Indonesia’s economy, the largest in Southeast Asia, grew 6.5 percent last year, but a weakening global economy, which has translated into slowing exports, has pushed down growth slightly to 6.3 percent in the first quarter this year.

“BI wants to grow investment and working capital loans, which are productive, instead of consumer loans,” Standard Chartered Bank Indonesia economist Eric Sugandi said.

Investment and working capital loans each grew by about 30 percent in May compared to the same period last year, while consumer loans grew the least, at about 20 percent.

While lending grew rapidly, bad loans remained manageable with non-performing loans (NPL) at below the central bank’s threshold of 5 percent.

Capital adequacy ratios (CAR), which indicate a bank’s capital strength to disburse credit, stood at 17.87 percent, far above BI’s minimum requirement of 8 percent.