Publicly listed lender CIMB Niaga, the fifth-largest lender by assets in Indonesia, says it is taking a cautious approach to 2015 as business is predicted to remain challenging.

According to CIMB Niaga strategy and finance director Wan Razly Abdullah, 2015 is set to be a tough year for the domestic banking industry.

'€œ[Next year] will be a tough year, with loan growth expected to grow at a moderate 15 percent,'€ he said on Friday.

The loan-growth rate will be much smaller compared to what the industry recorded in previous years, in which the rate hovered between 20 and 25 percent.

The current economic slowdown, which is estimated to continue into 2015, and bottlenecks in the business system, will also pose challenges to the industry, said CIMB Niaga vice president director Lo Nyen Khing.

'€œSome of the issues that we see now are because there are bottlenecks in the business system. Economists have also told me that the [economic growth] forecast is 5.2 percent for 2015,'€ he added.

The forecast is lower than what Bank Indonesia (BI) and the government have projected. While the central bank expects the economy to surge between 5.4 and 5.8 percent, the government has set its projection at 5.8 percent.

However, Lo said that if fully realized, the new administration'€™s commitment to reforming the bureaucracy might speed things up and thus be more positive for the economy.

'€œThe more the government opens up these bottlenecks and lets the normal business go ahead, the better it is for everyone, including the banking industry,'€ he added.

CIMB'€™s Razly voiced similar a opinion, saying that the 2015 outlook would depend on the government'€™s policies to support the economy and provide growth impetus through public spending.

To boost its own growth next year, CIMB Niaga '€” part of Malaysia'€™s CIMB Group '€” will be more selective in disbursing its loans, with coal and coal shipments as two sectors that will receive more caution, according to Lo.

The lender is prepared to see its net interest margin (NIM) ratio contract a little due to moderate credit growth next year.

CIMB'€™s NIM has been slightly under pressure since the beginning of the year as the costs of funds have increased much faster than the interest rate for loans. The bank ended 2013 with a NIM of 5.34 percent, but the ratio has fallen by 7 basis points (bps) to 5.27 percent as of September.

It wrote in its nine-month financial report that credit costs were up by 50 bps year-on-year to 1.25 percent as well during the period, in line with increased non-performing loans.

With higher provisions and lower fee income from its bancassurance business, CIMB saw its net profits plunge 28.5 percent to Rp 2.3 trillion (US$188.1 million) in the January-September period.

Razly said it would focus on expanding lending to high-quality corporate customers and invest in digital banking services to prevent further decline in the bank'€™s profitability.

Another drop in CIMB Niaga'€™s profits would be an additional blow to the CIMB Group as operations in Indonesia made up for the second-largest after those in Malaysia.

CIMB has not published its third quarter results, but its first-half financial report shows that CIMB Niaga accounted for 26 percent of its total profits before tax (PBT) figure. A year ago, the contribution from CIMB Niaga was equal to 31 percent of PBT.

CIMB Niaga reportedly had a total of Rp 227.74 trillion in assets by the end of September.

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