The Jakarta Post
Indonesia’s banking industry is expected to see a drop in loan growth to around 4 percent this year as the COVID-19 pandemic batters the economy, an economist has said.
Senior economist at the Institute for Development of Economics and Finance (INDEF), Aviliani, said Indonesian banks had become hesitant to provide loans to new debtors, as both the national and global economy had been disrupted by COVID-19.
“I think loan growth will be around 4 percent and new loan disbursement will begin to return to normal in March 2021. The banks are hesitant to channel loans as demand will remain low until December,” she said during an online discussion on Friday.
The country’s banking industry recorded 5.93 percent loan growth in February, the lowest expansion since November 2009, according to Financial Services Authority (OJK) data. The figure is lower than the 6.1 percent booked in January.
The non-performing loan (NPL) rate jumped to nearly 2.8 percent, the highest since May last year.
The OJK and Bank Indonesia (BI) previously set a loan growth target of around 11 percent this year. The central bank recently slashed its projection to between 6 and 8 percent.
Despite the projected decline in Indonesia’s banking sector, Aviliani expressed optimism the country’s financial sector would remain resilient, unlike during the 1998 financial crisis.
The banks, she added, should start making projections of their liquidity, as many businesses would ask for loans to be restructured amid the economic crisis.
“Let’s say if 10 percent of their customers file for debt restructuring, what sort of cash flow is needed? The banks should be prepared, so they will not face liquidity problems if their customers withdraw their money,” she said.
The SARS-CoV-2 outbreak has forced the government to call on citizens to stay home, causing disruption to businesses and harming people’s purchasing power.
The government projects the country’s economy to grow 2.3 percent this year under a baseline scenario, which would be the lowest rate since 1999, or contract by 0.4 percent in a worst-case scenario.
Besides calling on banks to anticipate liquidity issues, Aviliani also lauded the government’s efforts in maintaining stability in the financial sector through the issuance of a regulation in lieu of law (Perppu) on the COVID-19 response, calling it “a step in the right direction”.
“This Perppu not only regulates the financial sector but also helps the real sector through incentive policies such as corporate tax relaxation, expediting tax returns and import fee waivers,” she said.
President Joko “Jokowi” Widodo issued the Perppu on March 31, which activated a crisis protocol, widened the state budget deficit limit beyond 3 percent, cut corporate income taxes and allowed BI to throw lifelines to the government through purchases of government bonds through auctions, among other measures.