Dicky Kristanto, Jakarta – Indonesian bank loans' growth is expected to halve to around 15-16 percent in 2009 from about 30 percent last year, a deputy central bank governor said, amid a slowdown in Southeast Asia's biggest economy.
Analysts said the slow loan growth was partly due to stubbornly high lending rates charged by banks as they seek to maintain profits and prepare for a possible spike in non-performing loans as the economy weakens.
A recent study by Bank Indonesia, the central bank, indicated that several sectors considered to face higher credit risk had seen slower loan growth, including manufacturing, farming and mining.
Annual loan growth in the mining sector, for example, fell to 17.9 percent in February from 35.5 percent in January, central bank data showed.
Given Indonesia's relatively under-developed corporate bond market, bank lending plays a crucial role in the domestic economy and accounts for the bulk of Indonesia's corporate debt.
Indonesia's domestic corporate bond market is equivalent to just 1.3 percent of GDP, compared to 35 percent in Malaysia, according to report by the Asian Development Bank.
"For the banking industry, 15-16 percent lending growth is still quite high in the current situation, while it is negative in other countries," Muliaman Hadad, a deputy central bank governor, said on Wednesday.
Indonesia held parliamentary elections last week and will hold a presidential election in July, with economic performance one of the top issues for voters.
The central bank has forecast growth of 3-4 percent in 2009, slowing from 6.1 percent last year as demand for exports slump.
Indonesia is far less dependent on exports than some of its neighbours because of its large domestic market. In a bid to spur domestic demand, the central bank has cut its benchmark interest rate BIPG by 2 percentage points to 7.5 percent, but the moves have largely failed to translate into lower bank lending rates.
Many banks have been reluctant to cut lending rates, citing the need to keep extra cash amid market uncertainty.
"We have excess liquidity but it does not mean that we will be able to (significantly) cut rates," said Sudaryanto Sudargo, a director at major lender Bank BRI (BBRI.JK), adding that "we have to be prudent."
For those seeking mortgage loans, lending rates can be as high as 18 percent, Teguh Satria, chairman of the Indonesian Real Estate Association (REI), told Reuters.
"Mortgage rates usually hover about 4 percentage points above the BI rate. So that they should have been around 11.5-12 percent. The fact is that the rates are now way above. The lowest rate now is 14 percent, it could even hit 18 percent. This is way too high," Satria said.
Lending rates for some consumer goods were even higher. Hafid Hadeli, finance director at PT Adira Finance (ADMF.JK), one of the country's largest automotive financing firms, said lending rates for motorbike loans were now fixed at around 20 percent. (Editing by Sara Webb)