Banking Sector Indonesia: NIM and Credit Quality Improve
The net interest margin (NIM) of Indonesian banks rose while the nation's credit growth slowed and economic growth remained 'bleakish'. In June 2016 the average NIM of Indonesian banks was recorded at 5.59 percent compared to 5.32 percent in the same month one year earlier. The higher NIM is the result of improved credit quality, reflected by a lower non performing loan (NPL) ratio. NIM is the difference between interest income generated by banks and the amount of interest paid out by banks to the lenders. A higher NIM implies that the bank is more profitable.
Banks in Indonesia will be committed to maintain their current NIM figures until the end of the year. Strategies include the improvement of their cost of fund and raising the current account saving accounts (CASA) ratio (the ratio of deposits in current and saving accounts to total deposits).
Indonesia's Financial Services Authority (OJK) recently stated that the slowdown in credit growth in Indonesia is caused by banks' choice to consolidate in a bid to improve their credit quality, rather than seeking to disburse credit enthusiastically (hence seeing rising bad credit). According to the OJK this attitude managed to improve the overall credit quality in Indonesia, evidenced by a lower NPL ratio. From a peak of 3.11 percent in May 2016, Indonesia's overall NPL ratio eased to 3.05 percent one month later. This trend is expected to continue as banks remain committed to consolidation.
There are several banks that see their gross NPL ratio above the 5 percent line. However, due to their large internal reserves, the OJK does not consider this high ratio a threat.
Credit growth in Indonesia's banking sector remains bleak in 2016. According to the central bank of Indonesia (Bank Indonesia) the nation's credit growth reached 7.7 percent (y/y) in July 2016, down from a growth pace of 8.2 percent in the preceding month. Bank Indonesia targets to see full-year credit growth in the range of 7 - 9 percent (y/y), while the OJK is more optimistic and put Indonesia's credit growth outlook at the range of 10 - 12 percent (y/y) this year.
In general, slowing credit growth in Indonesia is caused by Indonesian companies' decision to expand at a slower pace, while Indonesian citizens are more careful to purchase loans due to their weakened purchasing power. The underlying reason being the economic slowdown that occurred between 2011 and 2015. This year, however, should be the year that finally brings economic acceleration again to Southeast Asia's largest economy. Indonesia's 5.18 percent (y/y) GDP growth pace in Q2-2016 gives rise to optimism.
NIM Growth Indonesian Banks:
| Bank | NIM H1-2016 |
NIM H1-2015 |
| Bank Mandiri | 6.23% | 5.76% |
| Bank Rakyat Indonesia | 8.43% | 7.88% |
| Bank Central Asia | 7.00% | 6.60% |
| Maybank Indonesia | 5.01% | 4.73% |
| Bank Permata | 3.91% | 3.76% |
| Bank Mayapada | 4.87% | 4.48% |
| Bank Tabungan Negara | 4.65% | 4.73% |
| OCBC NISP | 4.70% | 3.70% |
Source: various financial statements
Overall Profile Indonesia's Banking Sector:
| 2012 |
2013 |
2014 |
2015 |
2016 (June) |
2015 (June) |
|
| Net Profit (IDR trillion) |
92.53 | 106.71 | 112.16 | 104.63 | 54.62 | 50.84 |
| Total Assets (IDR trillion) |
4,262.59 | 4,954.47 | 5,615.15 | 6,132.58 | 6.362.71 | 5,933.19 |
| Credit (IDR trillion) |
2,707.86 | 3,292.87 | 3,674.31 | 4,057.90 | 4,168.31 | 3,828.04 |
| Third-Party Funds (IDR trillion) |
3,225.20 | 3,663.97 | 4,114.42 | 4,413.06 | 4,574.67 | 4,319.75 |
| Net Interest Margin (%) |
5.49 | 4.89 | 4.23 | 5.39 | 5.59 | 5.32 |
| Loan-Deposit Ratio (%) |
83.58 | 89.70 | 89.42 | 92.11 | 91.19 | 88.50 |
| Capital Adequacy Ratio (%) |
17.43 | 18.13 | 19.57 | 21.39 | 22.50 | 20.28 |
Source: OJK