ASEAN KEY DESTINATIONS
Too much credit, not enough savings: Bankers
Indonesia needs to hit the brakes on its too-fast lending expansion trend as growth for loans has outpaced that of deposits for too long, a foreign bank representative says.
“Over the last three years, we have seen 20 to 22 percent credit growth for the whole banking sector — which is a lot, and I think a slowdown is now realistic,” Joseph Abraham, chairman of the Foreign Banks Association of Indonesia (FBAI), said late on Tuesday.
FBAI members encompass 26 foreign lenders, including ANZ, Bank of Tokyo Mitsubishi UFJ, BNP Paribas, Commonwealth Bank, DBS Bank, HSBC, JPMorgan Chase and Standard Chartered.
Foreign banks have been among those enjoying the most from Indonesia’s lucrative banking sector.
The latest statistics from Bank Indonesia (BI) shows that lending growth for foreign banks stood at 25 percent, to reach Rp 210 trillion (US$18.7 billion) as of August this year, outpacing the industry’s average of 22.2 percent.
But deposits failed to grow as strong as loans, with foreign banks’ third-party deposit growth rate sitting at only 9 percent in the same period this year to reach Rp 167 trillion. This rate was below the industry’s average of 13.5 percent.
With the widening gap between the two growth rates, the banking sectors may face liquidity problems due to a rising loan-to-deposit ratio, which eventually would curtail banks’ lending, thus, squeezing their profits.
The ratio, calculated by dividing total outstanding loans by total deposits, now stood at 88 percent, higher than 79 percent recorded last year.
Competition for deposits is also fierce among local banks. Second quarter financial reports show that the deposit-lending growth shortfall of big lenders Bank Central Asia (BCA) and Bank Negara Indonesia (BNI) topped 9.5 percent and 12 percent, respectively.
The gap between lending and deposit growth rates in the industry is now around 9 percent on average, a level that analysts consider alarming.
“Deposits are growing by 13 percent and lending by 22 percent, this cannot be sustained in the long run,” said Abraham, himself also president director of Australia-based Bank ANZ Indonesia.
“You have to ensure there’s enough liquidity [...] and NPLs [non-performing loans] do not rise too fast when we have rapid expansion.”
Abraham said the central bank had been “sensible” with its recent monetary tightening policies as
the country needed to have steadier, more sustainable growth in the sector.
BI raised its key interest rate by 150 basis points to 7.25 percent this year to balance lending and deposit growth as higher interest rates would discourage banks from channeling excessive lending, while at the same time persuading people to save more.
However, BI Deputy Governor Halim Alamsyah said it might take one-and-a-half years for the interest rate policy to affect lending growth.
But the impact, he said, would be expedited by decelerating economic growth, given the high sensitivity of lending toward domestic demand.
He predicted that Indonesia’s credit growth might stay at above 20 percent next year, with some election-related activities, in particular, contributing to lending expansion among local banks.
To survive in a tight-liquidity environment, many local lenders have been offering high interest rates to attract big depositors.
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