[JAKARTA] Indonesia's big, state-run banks are counting on government-led infrastructure projects to revive flagging loan growth as they reduce credit lines to the risky commodities sector and as local businesses delay expansion plans.
A more cautious approach to lending since last year cut overall loan growth to 11.5 per cent in January, the smallest year-on-year gain in almost five years, the latest central bank data shows. The lending slowdown lowered 2014 profit growth to 4.5 per cent, the weakest pace in nine years, according to a Thomson Reuters analysis of 15 banks including PT Bank Mandiri Tbk, PT Bank Central Asia Tbk and PT Bank Rakyat Indonesia Tbk.
The government's planned infrastructure projects will help lift loan growth in the second half of 2015, analysts say. President Joko "Jokowi" Widodo has identified improving Indonesia's dilapidated infrastructure as a priority. He is in Japan and China this week partly to drum up investor interest to help build badly needed ports, power plants and toll roads in Southeast Asia's largest economy. But if the projects are delayed or cancelled, "our worry is that loan growth this year will not even reach 14 per cent," said Teguh Hartanto, a banking analyst at Jakarta-based Bahana Securities.
Growth in outstanding loans slowed to 11.6 per cent last year, compared with a 12.3 per cent increase in third-party funds including bank deposits. Loan growth has slowed since the central bank in late 2013 ordered banks to curb lending, concerned about over-heating. Loan growth had outpaced deposit growth by 7 percentage points a year over the previous 10 years, according to a Standard Chartered report in April 2014.
Indonesian banks have reduced their exposure to commodity firms as Chinese demand for resources from coal to palm oil has slowed. Many local businesses have also put their expansion plans on hold due to the slowing economy and the rupiah's plunge against the dollar, cutting demand for corporate loans. Non-performing loans are still relatively low at 2.23 per cent in January.