Loan Growth Slows on Heightened Risk Considerations

CEIC Indonesia Data Talk - October 23, 2014 According to the Banking Survey for the third quarter of 2014, the vibrant loan growth seen in Indonesia during the second quarter has moderated somewhat as supply-side considerations – particularly tightened loan conditions and heightened interest rates – have placed downward pressure on demand. Formerly known as the “Bank Loan Survey”, the Banking Survey is conducted by the central bank, Bank Indonesia, with respondents comprising various commercial banks with headquarters in Jakarta and a combined credit share of approximately 80% of total national credit. The survey results are typically given as weighted net balance figures with individual respondents weighted by credit share. Based on the weighted net balance scores, the demand for new loans declined to 75.3% during the third quarter of 2014 relative to 87.9% during the previous quarter; previously, the weighted net balance score for new loans fell sharply to 21.7% during the first quarter. The weaker demand for loans during the third quarter was largely attributed to the lower net balance score for working capital loans, which fell to 73.2% from 90.0% during the previous quarter; working capital loans continue to bear the highest priority in banking loan disbursement (followed by investment and consumer loans). Disaggregating by economic sectors, loans to the mining sector, and the transportation and communication sectors, in particular, saw low weighted net balance scores with values of -28.8% and -14.3% respectively. Parallel to the dampened loan growth, 76.6% of respondents reported below-target loan disbursements during the third quarter (67.4% during the second quarter) especially for the consumer housing credit segment. In terms of supply side considerations, increasing risk factors, especially from a heightened non-performing loans ratio since early 2014 (rising from 1.77% during December 2013 to 2.24% during July 2014), has prompted banks to tighten their lending requirements. The high cost of funds during the third quarter of 2014, of approximately 6.80% for rupiah loans and 1.77% for foreign exchange loans, is expected to rise further to 6.94% and 1.81% respectively during the fourth quarter. In line with the increasing cost of funding, loan interest rates are expected to rise across the board. The aggregated response anticipates loan interest rates for working capital rising from the average of 13.33% and 6.05% for rupiah and foreign exchange loans respectively during the third quarter, to 13.47% and 6.14% during the fourth quarter. Similar increases in interest rates were anticipated for investment and consumption loans. Overall, banks have toned-down their optimism on loan growth, citing a higher interest rate environment and slower economic growth as the main reasons for their caution, though lower demand and higher credit risk also rank among the key considerations. In the context of the continuous increase in the non-performing loans ratio, slower loan growth may be a welcome correction as the tightening credit requirements help to contain credit risk. By Yudha Prawira Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
23rd October 2014 Loan Growth Slows on Heightened Risk Considerations

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