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aving registered slow growth in 2009, Indonesia’s banks showed stellar lending performance in 2010, with an average growth of more than 20 percent, spurred by a substantial increase of corporate loans.

According to Bank Indonesia, combined lending reached a total of Rp 1,722.84 trillion (US$191.23 billion) as of Dec. 21 last year, a 20.46 percent increase from the start of 2010. Despite the sharp increase from 9 percent in 2009, the growth was below the central bank’s target of 22 to 24 percent.

“With the assumption that loan growth in the last nine days of the year is as much as in the same period last year, we believe lending could grow 22.41 percent by year-end,” central bank spokesman Difi A. Johansyah said.

BI set this range for lending growth when it set its target for the economy to grow 6.0 percent last year. A 6.0 percent expansion is expected to translate into more than 2 million new jobs.

The central bank has maintained the BI rate at a historic low of 6.5 percent for more than a year to lower borrowing costs and help drive the economy to meet key targets. The BI rate is used as a reference point by commercial banks in setting their interest rates, including lending rates.

Despite the central bank’s success to keep its benchmark rate at such a low level, lending rates were relatively high in 2010. According to BI, the lending rate fell less than a percentage point to 12.01 percent as of Dec. 21 from 12.83 percent at the end of December 2009.

High lending rates remained the main factor hampering lending growth. Due to inefficiency and lack of competition, Indonesia’s banks’ net interest margin (NIM) was among the highest in the Asian region in 2010.

As of the end of October 2010, the average NIM was 5.73 percent, far higher than interest margins of around 2.0 to 3.5 percent in neighboring countries and other developed economies.

Central bank governor Darmin Nasution warned national banks several times that their lending rates were too high, and appealed to them to lower them in order to spur lending growth.

To press the issue amid scarce signs of compliance, the central bank issued a number of rulings to spur lending growth.

One of these will require banks to announce their rates to the mass media beginning in March. The second will impose a fine on banks whose lending to deposit ratio (LDR) is outside the range of 78 to 100 percent. Banks violating the requirement will have to place more reserves at the central bank.

The average LDR of national banks stood at just under 77 percent as of October last year.

“Our goal is now to lower banks’ margins. Banks need to lower their margins,” Bank Indonesia Deputy Governor Muliaman said. The central bank’s policies are expected to provide lower rates for the public, he added.

Still, the glowing performance of lending in 2010 was not without its flaws. About Rp 552.6 trillion of loans were non-disbursed as of October last year. Of this amount, Rp 168.5 trillion were committed loans and Rp 384.1 trillion uncommitted loans.

In comparison, non-disbursed loans were Rp 323.7 trillion in 2009.

The amount of committed non-disbursed loans accounted for about 10 percent of banks’ total lending in 2010. Muliaman called this figure “relatively stable”, adding that the normal rate would be 20 percent of lending.

Despite the increase of non-disbursed loans, the quality of the lending growth in 2010 was relatively healthy. The growth of working capital loans was almost as high as that of consumer spending loans.

Working capital and investment loans are important because they spur economic growth. More working capital and investment loans mean more enterprises have borrowed money to run and expand their businesses.

Working capital loans reached a total of Rp 819.58 trillion as of October 2010, a 21 percent jump from the same period last year. Meanwhile, investment lending reached Rp 332.99 trillion, growing by 18.4 percent.

As for consumer loans, the national banks disbursed Rp 523.07 trillion last year, a 24.8 percent increase compared to 2009.

Banks mostly reported healthy profit growth in 2010 but analysts say the high growth in their profits was not only caused by the sharp increase in lending but also due to the sharp increase in their non-interest income.

Bank Negara Indonesia (BNI), the nation’s fourth-largest lender by assets, posted a 10 percent lending growth as of September 2010, but its net profit jumped nearly 60 percent to Rp 2.95 trillion on the back of sharp growth in non-interest income during the period.

Bank Central Asia (BCA), the biggest private bank in the country, booked Rp 6.11 trillion in net profits, a 20 percent increase, in part due to fewer bad debts. (est)