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Lack of appetite for expansion slows bank lending growth

Posted by on 29 Oktober 2019

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An unfavorable global economy is causing many businesses to hold back on expansion, resulting in banks’ loan disbursement growth slowing until the third quarter of this year.

The latest data from Bank Indonesia (BI) shows bank lending slowed to 8.59 percent year-on-year (yoy) in August, the weakest growth rate in almost two years and compared with 9.58 percent yoy in July.

BI Governor Perry Warjiyo explained that the slump in corporate loan demand hampered the country’s lending growth.

“Businesses are still in a ‘wait-and-see’ mode because of the unfavorable global economic and geopolitical conditions,” he said during a press conference last Thursday.

The statement was backed by a recent BI survey that showed new loan demand in the third quarter of this year fell to 68.3 percent from 78.3 percent in the previous quarter as investment loan demand fell to 63.2 percent while consumer loan demand dropped to 45.9 percent. The survey also indicated that loan growth would slow to 9.7 percent yoy, lower than BI’s target of 10 to 12 percent.

Businesses echoed Perry’s sentiment. Indonesian Textile Industry Association (API) chairman Ade Sudrajat said on Monday that many of its members were holding back investment and expansion plans this year as the domestic and global economy cooled. Stagnating textile exports contributed to the textile companies’ lack of expansion.

“Our exports usually increase by between US$800 million and $1 billion, but this year they were only up by about $100 million,” he told The Jakarta Post over the phone.

Indonesian Employers Association (Apindo) chairman Haryadi Sukamdani, meanwhile, cited the psychological effect of the United States-China trade war as the main reason behind businesses’ lack of appetite for expansion.

Kadin executive director Shinta Kamdani added that the trade war, along with the fact that signs of recession were showing in several countries, was making businesses think twice about expansion and investment.

“They don’t want to have heavy financial costs on top of the expensive investment needed in Indonesia during uncertain times like today,” she said.

The evident slump in loan demand and businesses’ unwillingness to invest have limited banks’ loan disbursement growth up until the third quarter of this year.  

For instance, state-owned lender Bank Negara Indonesia’s (BNI) loan disbursement only grew by 14.7 percent yoy to Rp 558.7 trillion ($39.74 billion) in the January to September period on the back of a sharp increase in corporate loans. Although the publicly listed bank still recorded an increase in loan disbursement, the figure was well down on its growth achievement in last year’s third quarter of 15.6 percent yoy.

Amid the slowdown, the bank remains optimistic about maintaining lending growth at 13 to 14 percent by the end of this year, BNI deputy president director Herry Sidharta said recently.

BNI’s shares, traded on the Indonesia Stock Exchange (IDX) under the ticker BBNI, slipped 0.64 percent on Monday to Rp 7,775 compared to a 1 percent increase recorded by the overall banking sector.

Another state-owned bank, Bank Mandiri, reported loan growth of 11.5 percent in the third quarter versus 13.8 percent recorded in the corresponding period last year.

“[The loan expansion] in the third quarter of this year decreased because consumer credit growth declined quite deeply annually, the corporate credit segment, which usually grows by double digits, this year expanded by single digits,” Bank Mandiri business and network director Hery Gunardi said during the bank’s third quarter performance release in Jakarta on Monday.

“We’ve also adjusted our risk appetite to the market’s dynamics,” said finance director Panji Irawan. “By the end of this year, we expect our loan growth to reach 8 to 9 percent.”

Similarly, the country’s largest private lender by assets Bank Central Asia (BCA) recorded only a 10.9 percent yoy loan expansion during the first nine months of this year, well below its achievement in 2018’s third quarter of 17.3 percent.

President director Jahja Setiaatmadja said the company’s loan disbursement growth only reached 7 percent year-to-date. As a result of this slowing growth, he expected his bank’s loan growth would only reach 8 percent by the end of this year.

“There was a market recovery earlier this year but conditions began to weigh on businesses following the presidential election up until the new Cabinet appointment. But after the appointments, [I believe] the situation will return to normal,” he said when announcing the bank’s performance on Monday. (bry)

source : https://www.thejakartapost.com/news/2019/10/29/lack-appetite-expansion-slows-bank-lending-growth.html