Consumer loans demand slows down

Urip Hudiono, The Jakarta Post, Jakarta

Consumer lending is expected to slow this year following on predicted rise in interest rates, an analyst from the Hongkong Shanghai Banking Corporation (HSBC) said.

Bank lending to the corporate sector, however, will probably remain robust with companies needing new financing for future investment ventures, HSBC global markets head of sales Radianto Kusumo said.

With such factors in place, the London-based bank is estimating that Indonesia's economy could expand by up to 5.2 percent this year -- driven more by a growth in fixed investments rather than consumption.

"Cheap consumer loans will unlikely be as available as before due to rising interest rates," he said on Tuesday, during a presentation of the bank's economic review for the country.

The rise in credit interest rates, Radianto explained, would be the result of the central bank's tight-biased monetary policy of raising its one-month Bank Indonesia Certificate (SBI) benchmark interest rate to stem any picking up of inflation.

HSBC is forecasting that the SBI interest rate could reach 8.3 percent by the end of the year. The current rate is 7.7 percent.

Radianto said the rate increase would go hand in hand with the fact that consumption spending -- including on credit -- will probably reach saturation point after experiencing an average 35 percent growth over the past four years.

"The spending was mostly for fulfilling basic needs, so any future spending would be for secondary needs," he said. "If the interest rates of the loans go up, consumers will most likely hold off in taking the loans as it would not be urgent."

Consumer loans include credit card purchases, as well as credit for vehicles and houses, among others.

However, Radianto is still sees the corporate sector expanding strongly, undisturbed by any possible interest rate rise.

He pointed to the fact that the utilization rate of factories in Indonesia, according to a World Bank study, has reached a 20- year high and would therefore be in need of replenishing.

Many corporations have also finished restructuring and consolidating their balance sheets following the 1997 Asian financial crisis and are ready to take on new financing for future business ventures.

"They are in need of new lending at any cost, as long as the returns on the investments they targeting are still promising," he said.

Meanwhile, the forward earnings expectations of companies are also on the rise, indicating a possible rise as well in investment.

"According to our observations, a trend of gross fixed investment usually follows forward earnings expectations of companies," Radianto said.