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Mortgage growth to stagnate until year-end

Mortgage growth is estimated to remain flat until the end of year as demand has been disrupted by higher interest rates and tighter down payment requirements, bankers say

Tassia Sipahutar (The Jakarta Post)
Jakarta
Tue, July 8, 2014

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Mortgage growth to stagnate until year-end

M

ortgage growth is estimated to remain flat until the end of year as demand has been disrupted by higher interest rates and tighter down payment requirements, bankers say.

Bank Central Asia (BCA), the largest private lender by assets in Indonesia, has not seen significant growth in its average monthly bookings during the first six months of 2014, according to BCA individual banking director Henry Koenaifi.

Its average bookings currently revolves between Rp 1.1 trillion (US$93.91 million) and Rp 1.2 trillion per month, which is around the same level as 2013.

By May, BCA'€™s outstanding mortgage portfolio amounted to Rp 53 trillion, climbing slightly by 1.9 percent from December 2013.

Henry attributed the slow pace to rising interest rate and the relatively high growth which the lender already posted during the past three years.

'€œWe raised our fixed-interest rate by 2 percent for new bookings and 1 percent for floating rate ever since banking liquidity started to tighten last year,'€ he added referring to Bank Indonesia'€™s (BI) gradual benchmark increase of its interest rate by 175 basis points (bps) to 7.5 percent between June and November 2013, to prevent soaring domestic consumption.

The central bank also introduced a revision to its loan-to-value (LTV) regulation last September in an effort to put the brakes on surging home loans.

Under the revision, customers are now required to pay higher down payments for the purchase of a second landed property or apartment measuring 70 square meters.

The down payment is set at 40 percent of the property'€™s price and is fixed even higher, at 50 percent, for the purchase of a third property.

However, despite the slowdown, BCA remains one of the lenders with the biggest share in the mortgage market, making up for 17 to 18 percent.

Meanwhile, Tardi, Bank Mandiri senior executive vice president for consumer finance, acknowledged that the new LTV regulation had driven its customers to take a '€œwait-and-see'€ approach in terms of second-property purchase.

'€œThey have not fully returned to their previous aggressive state and now turn to secondary property market, whose houses are already constructed,'€ Tardi wrote in an email.

Mandiri has not published its first half report, but as a result of the slowdown, the state-owned bank estimates that its mortgage portfolio will have surged by less than 10 percent year-on-year during the period of January to June, down from 30 percent a year ago.

This year, the bank expects to post 10 to 15 percent surge only in the mortgage segment, adjusting the rate to the 15 to 17 percent credit growth guideline established by the financial regulators.

State-owned Bank Tabungan Negara (BTN), the lender with the largest mortgage portfolio, has also felt the pinch of higher interest rate in its business.

BTN corporate secretary Eko Waluyo said that mortgage loan applications had slowly declined as it progressively boosted its interest rate by around 100 bps.

By year-end, it hopes to see loans climb 15 to 17 percent, much lower compared to the 24.3 percent growth reported in 2013.

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