Two years after the tumultuous global financial crisis, the Indonesian banking system is back on solid footing to spur lending and help boost economic growth in Southeast Asia’s largest economy.
Domestic banks, including Bank Mandiri and Bank Rakyat Indonesia, are targeting the country’s infrastructure and consumer sectors to boost their earnings.
“We see strong loan growth across the board,” said Zulkifli Zaini, president director of Bank Mandiri, the country’s largest lender by assets. “Noticeably, consumer loan growth has been growing strongly this year on the back of auto finance, credit cards and mortgages.”
Bank Indonesia expects the nation’s 121 lenders to continue to see strong earnings growth and a manageable level of bad loans next year.
Loans by Indonesian commercial banks have grown 23 percent this year to Rp 1,708.15 trillion ($189.6 billion) from the same period a year ago, the central bank said. The growth came in above Bank Indonesia’s full-year target of 22 percent, while it measured 19.4 percent on a year-to-date basis.
Indonesian banks have aggressively boosted their lending to meet growing demand for financing by corporations and individuals in Indonesia’s surging economy. Indonesia’s economy, which is forecast to expand 6.1 percent this year, is expected to grow by 6.5 percent next year.
Wiwie Kurnia, chairman of the Indonesian Financial Service Association (APPI), said car sales may reach 700,000 units and motorcycles may reach 7 million units in 2010. Indonesian consumers and car owners, who typically finance their vehicle purchases with bank loans, are capitalizing on low borrowing costs.
Bank Indonesia has refrained from raising its benchmark interest rate in order to boost growth. The rate has stayed at 6.5 percent since August 2009. “Apart from increasing demand from customers, low interest rate policy set by Bank Indonesia has helped commercial banks reduce their lending rates. This has boosted the auto-financing business,” Wiwie said.
Consumer loans grew 24.8 percent in the first 10 months of 2010 to Rp 523.1 trillion, central bank data showed. This outpaced commercial loans, which grew 21 percent to Rp 819 trillion over the same period, and investment loans, which grew 18.4 percent to Rp 332.9 trillion.
Total combined net profits in the banking sector rose 28 percent to Rp 49.05 trillion in the first 10 months of the year, from Rp 38.3 trillion in the same period in 2009.
Still, bankers such as Zulkifli voiced their concern over regulations to finance much-needed infrastructure projects in Indonesia. They pointed to land clearance as an example.
“Bank Mandiri has pledged to lend between Rp 7 trillion to Rp 8 trillion to finance infrastructure projects this year. Of that, only Rp 1 trillion has been disbursed so far,” he said.
“I think banks could have done better if the government had cleared regulation problems that have hampered infrastructure development. Banks cannot give loans if companies cannot build because there is no land to build on.”
The government is deliberating a bill to expedite land acquisition, which under current law can take years and delay infrastructure projects. Coordinating Minister for the Economy Hatta Rajasa said last week that such a law may be approved by the House of Representatives by the first half of 2011.
Despite such problems, Indonesian banks continue to manage and operate in a healthy and prudent environment. The average capital adequacy ratio, a measure of a bank’s soundness in relation to risk, was 18.6 percent as of the end of September this year, well above the 8 percent minimum requirement set by the central bank.
With such a strong performance backed by a robust economy, the sector has started to lure foreign and local investors. In October, Mochtar Riady, founder of Lippo Group, re-entered the banking sector by acquiring a 60 percent stake in Bank National Nobu for Rp 60 billion rupiah. The Jakarta Globe is affiliated with Lippo Group.
Muliaman D. Hadad, deputy governor of Bank Indonesia, is bullish about growth in the banking sector.
He predicted that loans could grow by 20 to 24 percent next year.
Zulkifli agreed that 2011 could be a stellar year for the sector, especially if banks can tap the vast amounts of foreign funds flowing into the local economy.
“They [investors] need instruments to invest. We can offer such instruments and use the money for expansion,” he said, adding that Bank Mandiri anticipates loan growth of 20 percent to 22 percent next year.
Bank Mandiri plans a rights issue in the first half next year that could raise between Rp 10 trillion to Rp 12 trillion.
Bank Danamon, Indonesia’s sixth-largest lender by assets, hopes to raise up to Rp 5 trillion in fresh funding in 2011. The funds could come from a private placement, syndicated loans or bond issuance, according to Pradip Chhadva, the bank’s director of treasury.
Bank Danamon Indonesia, which was established in 1956, is 67.42 percent controlled by Asia Financial Pte. Ltd. and 32.58 percent by the public. It operates more than 2,500 branches and points of sale, including its Danamon Simpan Pinjam and Syariah units as well as Adira Finance branches.
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