Indonesian banks face difficult year

Though ratings agencies are bullish about Indonesia’s stability, bankers are worried about a series of hurdles likely to see profitability fall from last year.

Bankers around the nation cited inflation worries, banking regulations and stiff competition in the small- and medium-sized enterprises sector as the top challenges for the finance system.

Henry Ho, president director of Bank Danamon, the nation’s sixth-largest lender, said inflation and competition from other banks for SME finance would require diligence this year. Banks covet the SME segment as they can charge those businesses higher rates than they charge corporations.

Danamon saw its net profit grow 88 percent last year to Rp 2.88 trillion (US$331 million), some of which was attributed to strong gains in loans to SMEs. Its overall loans grew 31 percent last year to Rp 82.7 trillion, but loan growth is expected to slow this year to between 15 and 20 percent.

Bank Mega, a mid-size lender, expects 25 percent credit growth this year, but new central bank policies have left it less optimistic about its profit growth.

“There is some pressure from Bank Indonesia to reduce our net interest margin,” Bank Mega president director JB Kendarto said. “The benchmark rate increased by 25 basis points and there are possible further increases ahead, but our credit growth cannot increase.”

Bank Mega booked 77.1 percent growth in its net profit to Rp 952 billion last year. This year, Kendarto said, profit may be eroded if the bank cannot fulfill its 78 percent minimum loan-to-deposit ratio requirement from the central bank.

“We had to put an additional Rp 700 billion to increase our savings at the central bank. That’s Rp 700 billion we cannot distribute for lending because we have to patch up our savings in the form of statutory reserves,” he said.

Bank Central Asia, the nation’s third-largest lender, was more bullish. “Making profit is not only from [giving loans],” vice president Jahja Setiaatmaja said.

He said the bank planned to open a general insurance company in the first half of this year to diversify its income.