S

mall banks operating in the country have revised down their loan growth target this year as the issue of limited cash supply poses a challenge for them to expand lending while still maintaining a healthy capital level.

Banks under the BUKU I category '€” whose core capital is below Rp 1 trillion (US$85.35 million) '€” have slashed their lending growth target by the widest margin, according to the latest report issued by the Financial Services Authority (OJK).

The banks, which are considered the smallest in size, initially set their average lending growth target at 27.5 percent, but their new banking business plans show they have scaled down the target by 2.1 percentage points to 25.4 percent, which is the biggest revision among all bank categories.

OJK banking research and regulation department head Gandjar Mustika said on Friday that lenders were fully aware of the upcoming tight liquidity situation, which is they revised their targets, in compliance with OJK'€™s guideline.

'€œAt the same time, banks now face tougher capital requirements. If they want to maintain healthy capital, they automatically have to adjust or decelerate their lending target,'€ he said.

For 2014, the OJK, along with Bank Indonesia (BI), has set overall lending growth at 15 to 17 percent for banks nationwide, much lower compared to the 20 and 22 percent range the banks achieved in previous years.

Jahja Setiaatmadja, president director of the nation'€™s biggest private lender by assets, Bank Central Asia (BCA), previously said that nationwide loan growth this year may slow more than expected by policymakers due to tighter cash supply and slower economic growth.

Deposit Insurance Corporation (LPS) executive chairman Kartika '€œTiko'€ Wirjoatmodjo said the revised banking business plans reflected healthy development for the lenders.

'€œI notice that they [BUKU I banks] are not pushing too hard to compete because of the rising interest rates. This is part of their defense strategy, which will enable them to grow when the situation is back to normal,'€ he said.

BI embarked last year on a tightening cycle on the country'€™s economic activities, especially on the monetary side, by raising the benchmark interest rate by 175 basis points as the country'€™s current-account deficit widened.

That has drained cash supply in Southeast Asia'€™s largest economy and forced banks to compete hard for third-party funds in the market.

The competitive environment has pushed banks under the BUKU II category '€” whose core capital is between Rp 1 million and Rp 5 trillion '€” to reduce their funding targets the most as compared with lenders in other categories.

Funding growth is expected to fall to 19.8 percent this year, from 25 percent in the initial target, according to the banks'€™ revised business plans submitted to the OJK.

The lower funding targets set by BUKU II and III lenders would help ease pressure on liquidity in the second half, according to Tiko.

Indonesia currently has 119 banks operating across the country. They are classified under four categories '€” BUKU I, BUKU II, BUKU III '€” with core capital of Rp 5 to Rp 30 trillion and BUKU IV with core capital beyond Rp 30 trillion.

The number of BUKU I banks now stands at 53, BUKU II at 45, BUKU III at 17 and BUKU IV at four.

The top-four list consists of Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Central Asia (BCA) and Bank Negara Indonesia (BNI). These four banks did not change their lending outlooks as the average growth target remains at 16.4 percent, according to the OJK report.

BNI finance director Yap Tjay Soen previously said that BNI had set a '€œconservative'€ guideline for 2014 with 15 to 17 percent and that it did not feel the need to carry out any change for the rest of the year.
J