Indonesia's banking sector has shown signs of healthy growth with continued increases in lending during the first quarter of this year after a sluggish performance in 2006, the latest survey from the central bank shows.
Nearly 70 percent of the country's 130 banks surveyed for Bank Indonesia's (BI) quarterly industry review reported an increase in their lending during the first quarter of 2007.
"Only 34 percent of the respondents said they failed to meet their lending targets in the first quarter," the central bank said.
According to the survey, most of the banks are also expecting higher lending growth in the second quarter of the year, as demand will likely continue to increase amid improvements in business confidence.
This optimism is built on rising demand for new loans, which has resulted from lower lending rates and the improvement of the economic fundamental.
Official data pertaining to the banking industry's first-quarter outstanding lending figures has not yet been released, but it has, as of February, reached Rp 783.5 trillion (US$86.1 billion), a separate BI report shows. This was a rebound from January's Rp 17.5 trillion credit slump, after which only Rp 774.8 trillion was posted.
Bank Mandiri, the country's largest lender by assets, saw its outstanding loans until March reach Rp 114.3 trillion, an almost 9 percent growth from the same period last year.
Banks had managed to increase their lending on a rise as well in their main source of funding from savings and deposits, which as of February amounted to Rp 1,284 trillion, a rebound from Rp 1,279 trillion in January.
The survey further showed that most of the industry's new lendings during the first quarter were investment and consumer loans, while those for working capital saw a slump.
The investment loans were mostly disbursed to the trade and services sectors, while consumer loans were for house mortgages and car and motorcycle loans. Most of the new loans were extensions to existing debtors.
Based on doubtful prospects, banks have appeared to continue staying clear from extending new loans to the textile industry. Indonesia's property sector is seen as currently being oversupplied and containing high business risks, while lenders have deemed that the mining sector has an unforgivably long return-on-investment period.
Another dismal fact about the country's banking sector, as shown by the survey, was that three out of four banks still prefer investing their funds in central bank bills rather than loans. This comes at a time when banks have been criticized for profiteering more from idle investments than from more productive financing for the country's real sector.
Looking ahead, however, banks intend to increase their loans as working capital, and at slightly lower lending rates.
Average lending rates in the year's first half are expected to be in the range between 14.17 and 15.82 percent, as compared to between 14.54 and 15.92 percent in the first quarter.
This is still a large spread from both BI's benchmark rate and the Deposit Insurance Agency's maximum guaranteed deposit rate of 9 percent. Inefficiency from lingering high business costs will still put deposit rates up between 7.55 and 9.48 percent until the first half, only a slight decline from between 8.74 and 11.26 percent in the first quarter.