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fter a slowdown in the first three months of 2014, lending growth is projected to pick up in the second quarter (Q2), with working capital estimated to remain the main driver of the increase.

According to Bank Indonesia'€™s (BI) latest banking survey published on April 14, new lending disbursement is projected to grow at a higher rate in the second quarter thanks to a projected increase in lending demand for working capital.

The projection is supported by higher optimism expressed by respondents during the survey as indicated by the score of the net weighted balance (SBT), an indicator used to reflect business sentiment and direction.

The survey shows the SBT jumped to 97.3 percent in the second quarter from 21.7 percent in the first quarter.

The respondents said they believed the economic situation would improve between April and June, and that banking clients would begin to apply for more loans to finance their business activities.

Based on the survey, the growth of new lending slowed in the first quarter of this year as indicated in the fall in the SBT to 21.7 percent from 88.5 percent in the fourth quarter last year.

The average new lending disbursement is predicted to grow 29.5 percent in the second quarter, whereas in the first quarter, the figure fell 3.4 percent.

The main priority lies in the disbursement of working capital loans, while in terms of economic sectors, most of the new loans will be given to large-scale and retail trade, according to the survey.

Overall, respondents believed 2014'€™s lending growth would reach 18 percent.

'€œEven though the predicted growth rate is lower than the realization in 2013, which was 21.8 percent, it is still higher than BI'€™s target range of 15 to 17 percent,'€ the survey says.

It also reveals the respondents'€™ conviction that there will be other increases in interest rates, with working capital loans, investment loans and consumer loans rising by 20 basis points, 11 basis points and eight basis points, respectively.

Commenting on the finding, A. Tony Prasetiantono, an economist with Gadjah Mada University (UGM), said businesspeople seemed to be more confident in carrying out their operations in the second quarter following the end of the recent legislative election.

'€œThey refrained from applying for new loans in the first quarter because they wanted to see how the legislative election turned out and what political parties have planned for the economy,'€ he said.

Now the election was over, they would resume activities and that would result in higher credit disbursement, he added.

Bank Internasional Indonesia (BII) chief economist Juniman shared Tony'€™s view, saying businesspeople would step up their activities in the second quarter.

'€œI don'€™t think that banks will increase their interest rates because that may boost their non-performing loans,'€ he said.

The latest data from BI shows that as of February 2014, the banking industry'€™s outstanding loans stood at Rp 3.27 quadrillion (US$286.2 billion), surging 19.9 percent year-on-year.

Bank Mandiri finance and strategy director Pahala N. Mansury said the state lender expected to see 18 percent growth in its loans in the second quarter, around the same level as the previous quarter.

'€œWe posted a 21 percent growth in loans in the first quarter, but that was mostly due to rupiah depreciation. So if we take the currency factor out, our growth stood at 17 percent,'€ he said, adding that working capital would remain the dominant lending segment between April and June.