In­done­sia banks to ben­e­fit from plan to boost econ­omy

The Pak Banker - - COMPANIES/BOSS -

In­done­sia's top banks may get a lift from new govern­ment plans to spur the econ­omy, which are seen boost­ing loan growth while al­low­ing them to pro­tect mar­gins that are al­ready among the world's widest.

The Fi­nan­cial Ser­vices Au­thor­ity, known as OJK, will lower the ceil­ing for de­posit rates this month for ma­jor lenders, a step it in­tends to bring down lend­ing rates to pro­mote eco­nomic ex­pan­sion, Nelson Tam­pub­olon, head of bank­ing su­per­vi­sion, told re­porters Mon­day. The ac­tion will pro­duce a one-per­cent­age point sav­ings for lenders, ac­cord­ing to Haru Koes­ma­har­gyo, fi­nance di­rec­tor at PT Bank Rakyat In­done­sia, the na­tion's se­cond-largest bank by as­sets.

Pres­i­dent Joko Wi­dodo is en­list­ing the sup­port of banks as he seeks to shore up flag­ging eco­nomic growth, a strat­egy that's been used by other emerg­ing Asian economies like China. Cut­ting banks' de­posit costs will per­mit them to of­fer cheaper loans with­out dam­ag­ing prof­itabil­ity.

"Net net, it's pos­i­tive for the bank­ing sec­tor as it can gen­er­ate loan growth," Ivan Tan, a Sin­ga­pore-based an­a­lyst at Stan­dard & Poor's LLC, said Tues­day in a tele­phone in­ter­view. "Over­all the mea­sure is to off­set ex­ter­nal head­winds that came with the China slow­down and lower com­mod­ity prices."

The Jakarta Fi­nance In­dex, which in­cludes In­done­sia's largest banks, is lit­tle changed since Feb. 26, the last trad­ing day be­fore the govern­ment an­nounced its plan for de­posit rate caps. That com­pares with a 1 per­cent gain by the broader Jakarta Stock Ex­change Com­pos­ite In­dex. The bench­mark for fi­nan­cial stocks has de­clined 1 per­cent this year, while the broader in­dex rose 4.1 per­cent.

OJK is seek­ing to in­crease loan growth by 13 per­cent to 14 per­cent this year, Chair­man Mu­lia­man Hadad said Feb. 25. Lend­ing grew by 10 per­cent to 11 per­cent last year, ac­cord­ing to S&P. In Novem­ber, the reg­u­la­tor had ini­tially set a tar­get for loans to climb 12 per­cent to 13 per­cent in 2016.

Weigh­ing on banks are non-per­form­ing debts, which may rise to 3 per­cent to 4 per­cent of the to­tal out­stand­ing this year, from 2.7 per­cent in Novem­ber, ac­cord­ing to an S&P es­ti­mate. The govern­ment's cur­rent bud­get calls for the na­tion's gross do­mes­tic prod­uct to in­crease by 5.3 per­cent this year, from a 4.79 per­cent ex­pan­sion in 2015, the slow­est in six years. So far in 2016, Bank In­done­sia, the cen­tral bank, cut its bench­mark in­ter­est rate by 50 ba­sis points, to 7 per­cent, and low­ered the re­serve re­quire­ment ra­tio to 6.5 per­cent.

The pre­mium over the cen­tral bank's ref­er­ence rate at banks with more than 30 tril­lion ru­piah ($2.25 bil­lion) core cap­i­tal will fall to 75 ba­sis points above the cen­tral bank's ref­er­ence rate, from 200 ba­sis points cur­rently, OJK's Tam­pub­olon said.

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