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Banks '€˜too optimistic'€™on lending growth

Analysts warn that banks appear to be unduly optimistic about lending growth in 2015 as demand for new loans is likely to continue to decline amid the ongoing slowdown in the country’s economy

Tassia Sipahutar (The Jakarta Post)
Jakarta
Tue, April 14, 2015

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Banks '€˜too optimistic'€™on lending growth

Analysts warn that banks appear to be unduly optimistic about lending growth in 2015 as demand for new loans is likely to continue to decline amid the ongoing slowdown in the country'€™s economy.

In a first-quarter survey of the banking industry that was published by Bank Indonesia (BI) on Monday, it was revealed that banks believe full-year lending growth will amount to 17.1 percent year-on-year.

The projected growth rate is significantly higher than the 11.6 percent that the banking industry actually posted in overall loans in 2014 and higher than the 15 percent to 17 percent target guideline that has been set by the central bank itself.

The new report, the results of which were collected from 42 commercial banks that BI claims control 80 percent of the nationwide lending market, attributes the optimism to an expected improvement in the economy.

The government has set 5.7 percent as its gross domestic product (GDP) growth target for this year, a target that many analysts have doubted can be achieved as a result of the lagging global economy.

The World Bank and the International Monetary Fund (IMF) estimate the Indonesian economy will grow 5.2 percent this year, slightly higher than the 5.02 percent growth recorded in 2014.

The survey points to lower interest rates and stronger capital as other factors behind the optimism. According to the survey, the banking industry will see demand for credit begin to pick up in the second quarter. Working capital loans will remain the first priority in terms of new loan disbursement, followed by investment and consumer loans.

The survey also highlights optimism about the growth prospects for third-party funds, namely savings, demand deposits and time deposits. The optimism is especially reflected among medium-sized banks that say they will see greater liquidity in 2015 compared to last year, when they engaged in tight competition to secure funds.

However, bankers and experts contacted by The Jakarta Post seemed to disagree. Bank Mandiri president director Budi Gunadi Sadikin, whose bank-only loan portfolio accounted for a 12.9 percent share of the lending market in 2014, said that overall lending growth would probably amount to only 15 percent this year.

'€œI have not seen a very significant improvement in the economy that leads us to achieve that rate [17.1 percent] in lending [growth],'€ he said during a telephone interview. He acknowledged that banks had no problem digging up funding sources anymore, but insisted that credit demand had not actually escalated.

Jahja Setiaatmadja, president director of biggest private lender Bank Central Asia (BCA), voiced a similar opinion, saying that businesses were still in a slowdown mode.

He also doubted that credit demand would pick up in the second quarter, as stated in the survey. '€œ[People'€™s] purchasing power is still low and business in general remains sluggish. It may not be until late in the second quarter or early third quarter that we see a rise in credit demand,'€ Jahja said.

BCA'€™s latest financial report showed that the lender controlled a 9.4 percent share of the nationwide lending market last year.

Meanwhile, Samuel Sekuritas Indonesia analyst Akhmad Nurcahyadi insisted that such a high growth rate in lending could only be achieved if the country posted better than 5.2 percent growth in its GDP.

However, he forecast that the GDP would only rise by between 5 percent and 5.1 percent in 2015, resulting in loan growth of 14 percent to 15 percent.

Separately, Gadjah Mada University economist A. Tony Prasetiantono argued that the survey'€™s loan growth projection was far too high.

'€œEven 15 percent is difficult to achieve. The realistic level is 13 percent. Last year'€™s rise in NPL [non-performing loans] should make them more conservative [in setting business targets] and be more prudent,'€ he said.

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