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Amid industry-beating growth, digital banks still lack profitability
Analysts say digital banks in Indonesia may need some three years to achieve greater stability in their financial performance.
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Publicly-listed digital bank Bank Jago launched a mobile app on April 15, 2021. (Courtesy of Bank Jago)
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ndonesian banks booked 8 percent year-on-year growth in loan disbursement in June, according to data from the Financial Services Authority (OJK).
Most of that growth came from banks in the categories KBMI2, KBMI3 and KBMI4, with more than Rp 6 trillion in core capital, while smaller lenders in the KBMI1 capital category only posted 1 percent loan growth during the same period.
Digital banks, meanwhile, which focus on acquiring and serving users through online platforms, outperformed the industry in terms of loan disbursement. Data from ten major digital-focused banks in the country, almost all of which are in the KBMI1 category, show a 22 percent jump in loans from June 2022 to June 2023.
Analysts attribute these lenders’ significant growth to their strategy of providing user-friendly services and operating in external online ecosystems giving them access to large numbers of users. That said, those new lenders still face challenges in achieving or maintaining profitability and may need three years to see more stable financial results, according to those analysts.
M. Amin Nurdin, a senior faculty member at the Indonesian Banking Development Institute (LPPI), explained that category-KBMI1 banks, with less than Rp 6 trillion in capital, were struggling to grow loan disbursement due to a lack of resources.
"[Increasing loans] incurs acquisition costs to build high-quality sales. Getting more customers also incurs costs in the shape of promotional expenses," Amin told The Jakarta Post on Thursday.
On the other hand, he added, digital banks could acquire users with fewer resources as they focused on the online realm, which made the registration and transaction process easier and helped attract customers.
