World Economy

Indonesia Banks Plan on Lowering Targets

Indonesia Banks Plan on Lowering TargetsIndonesia Banks Plan on Lowering Targets

Major banks are set to tone down their business plans this year in response to a continued slowdown in the country’s economy, which poses the risk of bad loans.

Banking business plans (RBBs), which lay out business growth targets and plans, are likely to be revised downward, which the banks have until the end of the month to do, according to the Financial Services Authority’s (OJK) deputy commissioner for banking supervision, Mulya Siregar.

“The thinking is that the economic slowdown will have an impact on [banks’] business. Our own initial [loan] growth projection is 16 percent, but it may change,” Mulya said recently, referring to the country’s economic growth decline to the lowest level in six years over the past few quarters, NewsNow reported.

In April, loan growth reached only 10.3 percent year-on-year, down from 11.1 percent in the previous month and much lower than banking regulators’ expectations for the year of between 15 and 17 percent.

The slow loan growth reflects business circumspection, as companies across sectors, from consumer goods giant Indofood Sukses Makmur to state oil and gas firm Pertamina, media conglomerate Surya Citra Media and taxi operator Blue Bird, put the brakes on expansion this year with lower capital expenditure (capex). Among companies planning RBB revisions are giants Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI).

“The economy has not bounced back. If it continues like this, we will probably revise down our business target,” BRI finance director Haru Koesmahargyo said. BRI previously targeted its loan growth to reach 15 to 17 percent.

BRI has felt the pinch of economic slowdown even in its micro loans portfolio, an area in which the lender has established a weighty reputation.

BRI’s micro, small and medium-sized enterprises director Djarot Kusumayakti said that the bank was looking at an overall 10 to 15 percent rise in micro loans in 2015. “We can’t run the business aggressively out of fear of rising bad loans,” he said.

BNI, also a state lender, is similarly anticipating slower growth for the rest of the year, according to president director Achmad Baiquni. Like BRI, it had originally set a lending target of 15 percent to 17 percent.

Baiquni said the bank’s own data showed the economic downturn continuing into April and May. “Our concern is credit quality. There’s an uptick in the special mention category and we have to be careful not to spur further deceleration,” he said.

BNI would probably reduce the target to between 13 percent and 14 percent, Baiquni added.

As of March, BRI and BNI managed around 12.8 percent and 6.9 percent of all domestic loans, respectively, making them the second- and fourth-largest banks in the lending market. Changes in their RBBs would as such be strong evidence of a more bearish approach from the market.