Esther Samboh, Jakarta – Indonesia's commercial banks booked Rp 15.5 trillion (US$1.68 billion) in net profits in the first two months of this year, a 40.6 percent increase from a year earlier as the nation's low interest rate environment amid a growing overall economy has spurred the appetite for lending.
The nation's 120 commercial lenders, which include state and foreign-owned banks, saw lending growth of 24.2 percent through February this year to an outstanding Rp 2,203 trillion compared with the same period last year, according to the latest data from banking regulator Bank Indonesia (BI).
"The increase in credit volume has significantly affected profits, as loan growth has been one of the highest on record," said David Sumual, an economist at Bank Central Asia (BBCA), Indonesia's largest private lender.
"That is a great opportunity to strengthen national banks' capitalization," he added. Commercial banks' capital adequacy ratio (CAR), a measure of capital strength, rose to an average of 18.4 percent in February this year from 18.1 percent a year ago.
The increase in lending has also boosted net interest income (NII), which is derived from lending rates charged to customers, to Rp 73.7 trillion as of February, up almost 7 percent from a year ago.
The government's pro-growth policy has resulted in a low interest rate environment in Southeast Asia's largest economy, with BI cutting benchmark interest by a total of 100 basis points in the past year to a record low of 5.75 percent to encourage lending.
BI expected that nationwide, banks would book an average 24 to 25 percent loan growth this year as the overall economy is expecting growth of between 6.3 and 6.7 percent – boosting demand for both household consumption and businesses expansion.
"The pattern is that consumer loan growth will continue to be slower than investment and working capital loans, which are more productive. This will continue for the next two or three years," BI deputy governor Muliaman Hadad said.
Investment loans grew the fastest as per February this year at 33.2 percent year-on-year. This compared with working capital loan growth of 23.4 percent and a 19.6 percent increase in consumer lending.
BI has also required banks to publicly announce their so-called prime lending rate, which banks charge to their most trustworthy customers, to create competition in the lending market, which in turn is expected to bring down lending rates and spur demand for credit.
"There has been a slide in the prime lending rate, but not as much as what we expected, so we will push efforts in bringing down the base lending rate," Muliaman said. The average bank lending rate dropped to 11.16 percent as of February this year from 11.84 percent a year ago.
There have been concerns, however, that BI's new regulation requires around a 30 percent down payment for automotive and housing loans, which will likely result in slower growth in consumer loans, analysts said.
Brushing off concerns, Bank Mandiri president director Zulkifli Zaini said the nation's largest lender so far saw little impact from the new ruling.
"We are seeing positive growth and NPL [non-performing loan] declines, while other indicators are also performing well," Zulkifli said in reference to Bank Mandiri's first quarter results, which saw overall lending growing above industry average at 29 percent.
Overall, national banks' bad loans are also on a downward trajectory, standing at 2.33 percent in February versus 2.78 percent during the same period last year.
[Raras Cahyafitri contributed to this story.]