T

he nation’s 120 commercial banks booked an aggregate 20 percent growth in net profits in the first semester, despite declining net interest margins (NIM), on stronger volume and demand for credit, the central bank reports.

The banks reported Rp 45.73 trillion in net profits in the January-to-June period, up 23.28 percent from the same period last year, while lending expanded 25.95 percent to Rp 2,470.38 trillion in the same period, Bank Indonesia’s (BI) latest data shows.

High credit growth prompted net interest income to rise 16.95 percent to Rp 97.73 trillion, compensating for a declining NIM, or difference between the lending and deposit rate. The figures for NIM dropped to 5.36 percent in June, versus 6.06 percent at the beginning of this year, according to the data.

“Competition has become tighter, so costs have been pushed. The NIM could be slightly smaller. Hopefully it will not disrupt bank performance if it [the NIM] is still high,” Muliaman Hadad, chairman of the Financial Services Authority (OJK), said on Thursday.

Overall interest expenses dropped 1.86 percent to Rp 91.67 trillion in the first six months of the year, compared to a year ago, while non-interest expenses rose 6.57 percent to Rp 109.1 trillion.

“The concern is how profits can be used as capital so that banks can be more able to organically increase capital, and in turn continue to grow and develop rapidly,” Muliaman told reporters.

The aggregate capital adequacy ratio (CAR) of the nation’s commercial banks, which measures capital strength, topped 17.45 percent in June, almost unchanged from last year and well above the central bank’s 8 percent minimum.

“Banks should seek high profits that could be used to strengthen their capital structure. What needs to be lowered is the dividend payout ratio,” Jahja Setiaatmadja, president director of the country’s largest private lender, Bank Central Asia (BBCA), said.

“Indonesia’s economy has grown rapidly, and that needs to be supported by banks,” Jahja said.

Commercial banks reported Rp 3,891.12 trillion in total assets in June, up 21.78 percent from last year.

“National banks are still performing well and are strong, but security and governance need to be maintained,” Citibank Indonesia country officer Tigor M. Siahaan said.

The nation’s economy, the largest in Southeast Asia, has grown by more than 6 percent a year for the past two years, driving corporate expansion and consumer consumption, making credit more affordable.

The amount of funds stored at commercial banks as time, savings and demand deposits rose 21.24 percent to Rp 2,995.83 trillion in June compared with last year.

Faster lending growth drove loan-to-deposit ratios (LDR) up to 82.57 percent in June, versus 79.67 percent last year.

Commercial banks include state-owned, foreign, joint ventures and regional development lenders.

Supervision of Indonesia’s banking industry will be transferred from BI to the OJK starting in 2014.

—JP/Esther Samboh