Major banks have begun to feel the pinch from the country'€™s economic slowdown, which has caused falls not only in lending growth but also profitability.

According to their financial reports, most banks reported a slowdown in lending disbursement, a drop in net interest margin (NIM) and a decline in profitability growth rate in the January to March period.

On average, the lenders posted single-digit growth only in outstanding loans, whereas a year before, they booked at least 10 percent loan growth.

Voicing the same sentiment across the banking industry, Bank Central Asia (BCA) president director Jahja Setiaatmadja said that credit demand appeared subdued in the first three months of the year.

 '€œWe have not seen an uptick in both people'€™s purchasing power and credit demand. The story is different now compared to last year,'€ he said, referring to an overall lagging economy that the country is facing.

 As a group, BCA'€™s outstanding loans climbed 5.8 percent year-on-year (yoy) in the first quarter, as opposed to 19.7 percent in the same period in 2014.

 Fellow state lenders Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) posted similar loan results, with BRI recording an annual rise of 9.4 percent while BNI'€™s growth stood at 9.1 percent.

Just one year prior, both BRI and BNI booked more than 19 percent yoy growth in their lending portfolios.

BRI finance director Haru Koesmahargyo also attributed the latest performance to economic slowdown, as it somewhat put the brakes on domestic production. '€œThat impacted the business of our clients,'€ he said.

According to BNI president director Achmad Baiquni, the business deceleration did not come as a surprise as it is usually low season in the beginning of the year.

Private lender Bank Danamon recorded flat lending business between January and March, with loans revolving at around Rp 135 trillion (US$10.43 billion).

The country'€™s gross domestic product (GDP) grew 4.92 percent last quarter from a year earlier, according to the median forecast from a Bloomberg survey of 16 economists. That would be the same rate as in the third quarter of 2014, which was the lowest since the same quarter in 2009.

With lower economic growth in the first quarter, banks also saw higher non-performing loan (NPL) ratios.

CIMB Niaga reported the highest NPL increase among the top 10 banks as the gross ratio climbed 150 basis points to 4.1 percent while the net ratio surged 42 basis points to 1.8 percent by the end of March.

With the quality deterioration and another possible decline for the remainder of the year, these banks decided to be cautious and allocated a huge sum of money for credit impairment, higher than in the previous year.

Bank Mandiri, for example, stated in its financial report that its consolidated loan provision had reached
Rp 18.01 trillion in the first quarter, an increase from the Rp 16.47 trillion allocated during the same period in 2014.

BRI, BCA, Bank Danamon and PermataBank were not exempt from it either as each bank pushed its loan provision higher. BNI also followed suit even though the lender saw its bad loans decline on an annual basis.

However, despite the NPL increase, deputy Financial Services Authority (OJK) commissioner for banking supervision Irwan Lubis insisted that current credit quality was not alarming and that the OJK welcomed the higher provision prepared by the banks.

'€œIt means they are prepared for potential quality decline,'€ he said.

Meanwhile, the major banks ended up with lower profitability growth as a result of the tough business atmosphere, a situation expected to persist at least until the first half.

Danamon president director Sng Seow Wah said he predicted business in the second quarter to not change dramatically, an opinion shared by Mandiri president director Budi Gunadi Sadikin.

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