Bankers urge the government to speed up state spending to shore up economic activities that have slowed to a level unseen since 2009 and boost demand for loans.

Charlie Paulus cannot help feeling unnerved by the latest economic and banking statistics. The president director of small lender Bank Index Selindo told The Jakarta Post that things might stay as bad in the second half of the year.

'€œWe have seen significant economic deceleration during the past few months. The latest figure on loan applications is not quite satisfactory either because credit demands have really dropped,'€ he said in a telephone interview.

Index '€” currently sitting among the country'€™s smallest banks in terms of core capital '€” saw its outstanding loans grow only 3.5 percent from the end of last year until March, in line with the overall banking industry'€™s 0.1 percent loan growth in the first three months of this year.

With lagging credit growth, Index will see its interest income '€” which is one of the bank'€™s two income generators in addition to fee-based income '€” compressed as well.

Even though he acknowledged that the first quarter was normally the slowest business period of the year, Charlie argued that the weak stream of state funds that flowed into the real sector had not helped improve the situation.

State spending, according to the latest data from the Finance Ministry, only reached 18.5 percent, or Rp 367.4 trillion, of the allocated Rp 1.98 quadrillion.

The weak spending has been named as a major cause of the gross domestic product (GDP) that grew 4.7 percent year-on-year in the first quarter, the weakest in six years.

'€œThe government must take swift action to address the issue, so that we can see the economy pick up in the second half or else,'€ Charlie said, adding that the lingering slowdown might lead to rising bad loans.

Other bankers voiced similar opinions.

'€œEverything seems gloomy, but we know where the problem is. Once the backlog is cleared, state funds can flow and create multiplier effects. At least, that'€™s what we hope for, but this shouldn'€™t be postponed any longer because the private sector can only do so much,'€ Bank Mayapada Internasional president director Hariyono Tjahjarijadi said.

Mayapada'€™s outstanding loans, according to its first quarter financial statement, rose 7.3 percent from December to March.

In an attempt to tackle the effects of rising costs and declining income from interest, the bank'€”now listed one level higher above Index in terms of core capital '€” has begun slashing its time deposits'€™ interest rates. It is also watching its loan quality closely as it already recorded increases in its bad loan ratio in the first quarter.

The same strategy is also carried out by Bank Internasional Indonesia (BII) to keep itself in the black amid the cooling economy. BII finance director Thilagavathy Nadason said that it would not go all out in securing time deposits to prevent it from recording surging costs from funds.

BII plans to revise its business plan as well this month, lowering its credit growth target to 13-15 percent, down from 15-17 percent.

Private lender PermataBank, one of BII'€™s peers, is anticipating an uptick in economic activities in the second half, driven by the realization of government-funded projects. However, according to Permata president director Roy Arman Arfandy, the positive impact will only be felt in 2016.

BNI president director Achmad Baiquni said that the state lender was looking forward to the government'€™s projects. '€œThey will spur activities in the supporting sectors, thus reviving demands for loans,'€ he said.    

Meanwhile, BCA president director Jahja Setiaatmadja said he doubted the GDP would even exceed 5.1 percent this year if government spending remained hindered, as businesses and the banking industry needed the confidence that would stem from spending.

Popular

Portugal recovers bodies of two Indonesian fishermen lost at sea

Palm oil expansion in Papua raises eyebrow

Businesses project 2026 growth at no more than 5.4%