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The 2024 banking industry outlook
There are two situations in 2024 that will affect the condition of national banking; first, the general election; second, indications of a weakening global economy.
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An employee arranges rupiah banknotes on June 23, 2022, at a Bank Mandiri branch in Jakarta. (Antara/Muhammad Adimaja)
T
he year 2024 will be special for Indonesia, as the presidential and legislative elections will coincide, changing the political landscape with new executive and legislative representatives at all administrative levels across Indonesia.
How will this impact the national banking industry? There are two events in 2024 that will affect the condition of national banking: the general election, and indications of a weakening global economy.
The 2024 general election, which will take place on Feb. 14, will certainly have a positive impact on the domestic economy in terms of consumption growth which will be accommodated by high demand, including textile demand for campaign attributes, food and drink, media, logistics and transportation. This will also have a direct impact on the Micro, Small and Medium Enterprises (MSMEs) industry, which will get orders to supply these events. We are optimistic that the 2024 election will boost demand for credit from the MSME sector because it can increase demand and this needs to be supported by banks to increase turnover and income.
If we look at past election results and their impacts, namely in July 2014 and April 2019, the average growth in MSME lending grew by more than 11 percent year-on-year (yoy). This growth was seen three months prior to and after the election because of campaign preparation and vote counting. This growth in MSME lending exceeded the growth in normal years, which is only around 7 percent to 8 percent yoy. Hence, we project that MSME lending growth will increase in 2024.
The 2024 elections will have a diverse impact. The MSME sector will be positively affected, with higher growth of credit demand, yet we expect something different to be seen for corporate lending. In the last two elections in July 2014 and April 2019, the average growth in national lending experienced a slowdown, especially in the three months prior to and after the election.
There are indications of a slowdown in credit growth caused by economic actors (both foreign investors and domestic companies) who tend to wait and see election results and understand the policy direction of the Indonesian economy for the next five years. This is why we expect the national credit distribution in the first semester of 2024 to slow down. However, this will not last long. After the announcement of the election results, market optimism toward the new government should attract investment in the second semester of 2024.
World economic growth is estimated to weaken to 2.9 percent yoy in 2024 (based on IMF projections), as this is influenced by the high uncertainty of global financial markets, which also has an impact on the domestic financial sector.
