ASEAN KEY DESTINATIONS
Banks won’t up loan growth targets despite BI’s easing
Indonesia:The country’s major lenders have no plans to increase their loan growth this year, despite their access to extra funds following the central bank’s decision to cut the mandatory reserve requirement.
The lenders said they would stick to their initial business plans in anticipation of looming risks.
Bank Indonesia (BI) last week cut the benchmark interest rate by 25 basis points (bps) to 7 percent and lowered the primary reserve requirement (GWM) by 1 percent to 6.5 percent, aiming to encourage lenders to lower their interest rates and increase lending.
With the cut in the reserve requirement, BI expects additional liquidity amounting to Rp 34 trillion (US$2.51 billion) in the banking system, which banks could use to boost their lending for at least the next one to three months.
The extra liquidity is higher than the Rp 18 trillion injected into the system when the central bank first lowered its reserve requirement in November last year.
Major lenders such as Bank Mandiri, Bank Central Asia (BCA) and Bank Negara Indonesia (BNI) welcomed the policy.
Mandiri president director Budi Gunadi Sadikin, BCA president director Jahja Setiaatmadja and BNI president director Achmad Baiquni said the three lenders would see extra liquidity of Rp 4.1 trillion, Rp 3 trillion and Rp 2.7 trillion, respectively.
However, they do not plan to revise their loan growth targets in their 2016 business plans in consideration of the ongoing risks in the global and domestic economy.
“BI’s monetary easing can help us reduce our cost of funds, but we will retain our targets in accordance with our business plan, especially considering that BNI’s loan growth target is higher than the industry average,” Baiquni said last week.
BNI has set its loan growth target at between 15 and 17 percent this year, higher than the average 12 to 14 percent predicted by BI and the Financial Services Authority (OJK). In 2015, BNI disbursed Rp 326.1 trillion in loans, a 17.5 percent year-on-year increase.
A report published by ratings agency Standard & Poor’s (S&P) in February suggests Indonesian banks will continue to face tough operating conditions this year, marked by lower growth and higher credit stress.
S&P primary credit analyst Ivan Tan said in the report that the risk of higher credit stress in Indonesian banks this year was caused by the lingering impact of a 200 bps BI rate increase between 2013 and 2014, as well as slowdown in corporate activity and high growth in riskier segments amid a decelerating economy.
Last week, BI Deputy Governor Perry Warjiyo said the cuts in the key interest rate and reserve requirement, coupled with relaxation in the loan-to-value (LTV) ratio in June last year, would help banks increase their loans by up to 14 percent by the end of this year, higher than the prediction of 12.5 percent without a cut in the reserve requirement.
The prediction suggests the swing will be higher than the 10.5 percent posted in December last year.
Perry said BI’s optimism was also based on the government’s efforts to expedite spending in infrastructure and other sectors, which, in turn, would trigger confidence among private firms and demand for loans.
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