Credit Growth in Indonesia Grows at Slowest Pace in 6 Years
Credit disbursement in Indonesia's banking sector grew at its slowest pace in six years in the first quarter of 2016. This weak performance is attributed to the slowdown in the country's real sector. Muliaman D. Hadad, Chairman of Indonesia's Financial Services Authority (OJK), said credit expansion grew 10 percent (y/y) to IDR 4,084 billion (approx. USD $300 billion) in Q1-2016. However, Hadad remains optimistic that credit expansion will accelerate in the second half of the year in line with forecasts for accelerating GDP growth. This will be a better context for businesses to expand.
Nelson Tampubolon, Commissioner for Banking Supervision at the OJK, said the slowdown in the real sector is largely responsible for sluggish credit growth in Indonesia in the first couple of months of 2016. Tampubolon has high hopes for the 11 economic policy packages that have been released by the Indonesian government since September 2015. He hopes these packages can manage to boost the nation's real sector (the real sector comprises the part of the economy that actually produces goods and services). Next week the government is scheduled to release the 12th economic policy package. Together these packages aim to boost Indonesia's economic growth through deregulation, tax incentives and measures that encourage higher purchasing power.
A survey of Bank Indonesia signals that demand for working capital credit and consumer credit declined in Indonesia in Q1-2016. However, credit demand for investment purposes in fact climbed according to this survey. It is also assumed that Indonesia's banks have become more careful disbursing loans because the non-performing loan ratio (NPL) has been on the rise during the last couple of years when Indonesia experienced a prolonged economic slowdown (2011-2015). The survey also indicates that the mining and extraction sectors showed a large fall in credit demand in Q1-2016.
Apart from the (forecast for) accelerating economic growth in the remainder of 2016, credit growth in Indonesia is also expected to rise on Bank Indonesia's lower interest rate environment. During the first three months of 2016 the central bank cut its key interest rate (BI rate) by a total of 75 basis points to 6.75 percent.
Kartika Wirjoatmodjo, General Director of state-controlled lender Bank Mandiri, confirmed credit growth in Q1-2016 indeed slowed. However, he added that it is a normal phenomenon to see sluggish credit expansion in the first months of year as government spending realization tends to be slow. As government spending realization improves in the remaining three quarters of the year private sector businesses tend to engage in business expansion later in the year (and require credit for these corporate actions). This is also the reason why the amount of undisbursed loans in Indonesia grew 8.35 percent (y/y) in February 2016 to IDR 1,245 trillion.
Credit Disbursement Indonesian Banking Sector in Quarter I:
| Quarter 1 2010 |
Quarter 1 2011 |
Quarter 1 2012 |
Quarter 1 2013 |
Quarter 1 2014 |
Quarter 1 2015 |
Quarter 1 2016 |
|
| Credit (in IDR trillion) |
1,456 |
1,824 |
2,282 | 2,787 | 3,334 | 3,713 | 4,084 |
| Y/Y Growth (%) |
11.5 | 25.3 | 25.1 | 22.1 | 19.2 | 11.4 | 10 |
Source: OJK