JAKARTA: The domestic banking industry saw its growth in loans fall to below 10 percent in July, far lower than the growth target of around 16 to 17 percent because of a lackluster economy, according to a Bank Indonesia (BI) report.
In its latest report on broad money (M2) circulation published on Friday, the central bank said loan growth dropped from 10.5 percent year-on-year (yoy) in June to 9.4 percent yoy in July, ending at Rp 3.85 quadrillion because of a weak economy.
“The slower credit growth was mainly in working capital and investment loans,” BI said in the report.
According to the report, working capital loans grew 8.4 percent yoy as of July, lower than the 10.4 percent yoy in the previous month, especially in the manufacturing, trading, hotel and restaurant industries.
Meanwhile, investment loan growth stood at 10.8 percent yoy by the end of July, slightly lower than the 11.3 percent yoy in June, with declining demand mainly from the manufacturing and construction sectors.
BI deputy governor Erwin Riyanto said the accelerated government spending expected in the second half of this year might not stimulate loan demand right away, as private companies would await the progress of the state projects.
“Current loan growth is still normal and BI is still projecting that the range will be around 11 percent to 13 percent by the end of the year,” Erwin said.
The loan growth percentage in July was far below the expected range of 16 to 17 percent loan growth as stated in the banks’ original business plans submitted to the Financial Services Authority (OJK) earlier this year.
As loan growth remains in decline, most banks slashed their full-year lending targets to around 13.4 percent in their revised business plans, according to OJK deputy commissioner for banking supervision Irwan Lubis.
Irwan said banks were still expecting acceleration from government spending, which would create multiplier effects in various sectors.
“We expect loan growth will be around 11 percent to 12 percent yoy by the end of the year if government spending moves significantly in the second half. However, lending will grow only around 8 percent to 10 percent if economic growth is still stagnant,” Irwan said.
As an effort to boost loan growth, the OJK issued on Friday a regulation on temporary economic stimulus for banks. The regulation was part of a broader policy package for the banking and financial industries in response to the impacts of a weak economy.
The economic stimulus includes a reduction of the risk-weighted asset (RWA) ratio for insured-credit programs, such as the KUR (people’s business credit), so that banks are more attracted to venture into them.
Prior to introducing the new package, the OJK only set a ratio for the KUR that was insured by state-owned insurance company Perum Jamkrindo. A lower RWA ratio will mean lower risk perception, which will lead to lower loan provision by banks.
Budi Gunadi Sadikin, president director at state-owned lender Bank Mandiri, said recently the lender was expecting that its loan growth would reach around 11 percent to 13 percent this year as it saw a slow pick-up in the third quarter.
“We already booked some loan commitments worth around Rp 80 trillion to 90 trillion for infrastructure projects, but the disbursement is still small. There will be a lot more disbursements next year as some projects are started in the second half of this year,” Budi said.
Bank Tabungan Negara (BTN) finance director Adi Setianto said the lender, which owns a large portfolio in mortgages, had decided to maintain its full-year loan target of around 15 percent to 18 percent despite weak lending growth.
“We are still optimistic with the progress of construction and residential projects because regional administrations have committed to help ease the process. Also, demand for mortgages is still growing in the lower segment,” Adi said.
