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Major Indonesian banks hit loan brake after last year's frenzy

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Jakarta Post - February 8, 2023

Aditya Hadi, Jakarta – Three of Indonesia's four largest banks have revealed modest goals for loan growth this year, despite surpassing their 2022 targets amid a difficult global environment and against a backdrop of solid economic growth projections.

The banks expect their loan portfolios to grow between 10 and 12 percent this year, matching the industry-wide forecast announced by the Financial Services Authority (OJK) on Monday as well as a December projection from Bank Indonesia (BI).

Last year, state-owned lender Bank Mandiri recorded 14.5 percent growth in loan disbursements, handily beating its 11 percent target. Meanwhile, fellow state-owned lender BNI and leading private lender BCA both exceeded their individual targets of 10 percent to achieve loan growth of respectively 11.7 percent and 10.9 percent.

BRI, another state-owned lender, has yet to publish its full-year financial performance, which is typically accompanied with an announcement of its current-year targets.

On Monday, Statistics Indonesia (BPS) announced that the country's gross domestic product grew 5.31 percent last year, the highest rate since 2013.

Moch. Amin Nurdin, a senior faculty member at the Indonesian Banking Development Institute (LPPI), told The Jakarta Post on Tuesday that banks could be avoiding optimistic targets based on predictions from several analysts that a global economic crisis could hit the country this year.

Amin added there was also a risk that Bank Indonesia (BI) might not be done yet with increasing interest rates, contrary to widespread market views.

A further increase in the central bank's benchmark interest rate to contain inflation would inevitably be followed by commercial banks charging higher interest on the loans they issued to maintain their profit margins. If that happened, loan growth would slow down, he added.

"Despite that, personally I am sure that loan growth of those banks this year will not be too far from last year's," Amin said, implying that their growth would thus be higher than the BI and OJK forecasts.

Binus University banking industry analyst Doddy Ariefianto told The Jakarta Post on Tuesday that banks were being realistic in anticipating the challenging economic conditions this year.

He went on to forecast that loan growth this year would be lower than last year, at around 10 percent.

In its latest earnings call, BCA stated it would be "really slow" to increase interest rates, as long as there was sufficient liquidity.

Bank Mandiri also said it would keep its interest rates competitive.

"We will follow industry trends, but wwill not directly pass the [BI interest] rate hikes on to debtors. The process would be selective and gradual," Panji Irawan, Mandiri's treasury and international banking director, said at the lender's earnings call.

Tengfu Li, an analyst at Moody's Investors Service, said Indonesian small and medium enterprises had not fully recovered from the pandemic yet, so local banks needed to price their lending rates competitively to maintain growth.

"So, from that perspective, they will also take time to pass on the rate [hike]," he said.

Growth on healthy loans

Indications of recovery among banks were detected in mid-2022, when BCA, Bank Mandiri and BRI had easily exceeded their minimum loan growth targets of 8 percent, according to the banks' announcement in January. As a result, they revised up their respective targets.

Bank Mandiri's significant jump last year in loan disbursement was supported by the sectors of fast-moving consumer goods, the government and the energy sectors. The bank plans to focus on the same sectors this year, with the addition of processing and healthcare businesses.

In a statement, the state-owned lender mentioned that its loan-at-risk (LAR) ratio was down from 17.4 percent in 2021 to 11.7 percent last year, so it planned to reduce its ratio of bad loans further this year to 8 or 9 percent.

The OJK launched a loan restructuring program that allowed debtors affected by the pandemic to extend their loan terms, and was applicable to banking sectors that saw an increase in their LAR ratios. The program was scheduled to terminate at the end of March 2023, but was extended a whole year to March 2024 for businesses in the labor-intensive sectors of textiles, furniture and footwear, as well as micro, small and medium enterprises.

Source: https://asianews.network/major-indonesian-banks-hit-loan-brake-after-last-years-frenzy

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