Credit Growth Indonesia: Banks Remain Selective in Disbursing New Credit
Although Indonesia’s economic fundamentals and future economic outlook have improved in recent months, supported by government spending, recovering household consumption and rising commodity prices, Indonesian banks remain very conservative when it comes to disbursing new credit to companies. Recently, the central bank of Indonesia (Bank Indonesia) cut its projection for credit growth in the nation's banking sector this year from the range of 10 - 11 percent year-on-year (y/y) to 7 - 9 percent (y/y).
Bank Indonesia Governor Agus Martowardojo informed that credit growth in Indonesia reached 8.7 percent (y/y) in the first quarter of 2016 and 8.9 percent (y/y) in the second quarter. These results are below earlier forecasts and show that credit disbursement in Indonesia's banking sector is yet to pick up.
Royke Tumilaar, Director of Corporate Banking at Bank Mandiri, said his company is willing to disburse new credit to companies active in fields related to commodities (considering the gradually recovering commodity prices so far this year). However, Bank Mandiri will only select the existing big (and therefore safer) debtors (having a good track record) in order to avoid rising non-performing loans (NPL).
So far this year prices of several of Indonesia’s key commodities have climbed by an average of 30 percent year-to-date (YTD). These commodities include crude palm oil, coal, crude oil, gold, nickel, tin and rubber.
Tumilaar added that there are currently many Indonesian companies in commodity-related sectors that are hedging foreign exchange risks. Although hedging implies that companies will see a lower profit margin, it will become easier for them to obtain credit as banks see less risk.
In the first half of 2016 Bank Mandiri disbursed most of its credit to the food and beverage industry, power generation, agriculture, and trade sectors as these sectors are regarded relatively safe. Only 6 percent of total corporate credit at Bank Mandiri went to the nation’s mining and oil & gas sectors.
Meanwhile, Achmad Baiquni, President Director of Bank Negara Indonesia (BNI), believes the engine of Indonesia’s economic growth is now infrastructure and construction and therefore these sectors are top priority when it comes to credit disbursement. Responding to recently rising commodity prices, he said rising prices do not mean that the commodity-related sectors are safe now.
Last year, when commodity prices collapsed, the oil and gas sector contributed significantly to BNI’s rising NPLs. Earlier, BNI officials announced that they would focus on the consumer goods, construction, power generation, and agriculture sectors this year (in terms of credit disbursement) in order to boost growth.
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