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Multifinance firms continue to grow as OJK warns of risks
Slower growth in household spending and bad weather may hamper the ability of debtors to repay multifinance firms, an analyst has said.
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Motorcycles are arranged for transporting at a factory in this file photo. Motorcycles account for a major share of multifinance revenue in Indonesia. (Kontan/Muradi)
T
he Financial Services Authority (OJK) has expressed concern about borrowers’ ability to make repayments on consumer loans as the global economic outlook remains hazy.
As the OJK disclosed on May 5, loan receivables of multifinance companies in the country totaled Rp 435.53 trillion (US$29.5 billion) at the end of March after growing by 16.35 percent year-on-year (yoy).
The authority reminded those lenders to maintain their equity above the minimum requirement, as well as to conduct "stress tests" and "sensitivity analysis" periodically.
Multifinance players interpret the OJK's statement as a precautionary announcement and stress that the risks mentioned may not materialize in the near future. Nonetheless, analysts say there are external factors that need to be watched closely by those lending firms to prevent trouble.
According to Suwandi Wiratno, who chairs the Indonesian Financial Services Association (APPI), the growth of multifinance companies is tied to the country's economic growth. Statistics Indonesia (BPS) announced on May 5 that gross domestic product (GDP) in the first quarter was up by 5.03 percent yoy, beating a consensus estimate of 4.97 percent.
However, he noted the OJK was not wrong to be cautious and multifinance firms still needed to engage in proper risk management, especially in assessing new borrowers and focusing on collection efforts.
"In every economic cycle, there is a zero-sum game, meaning there are companies that benefit from the current trend while others face losses. So, in choosing new borrowers, we should consider that there are some people who work in a certain field and feel the positive impact, while the rest don't," Suwandi told The Jakarta Post on Wednesday.
