Indonesian banks likely to see more than 12% loan growth this year

  • Business
  • Monday, 19 Mar 2018

Santoso: We will let them come, but only if they stay permanently in Indonesia. —Bloomberg

LONDON: Indonesian banks will see “more than 12%” loan growth in 2018 thanks to a recovering global economy and a pick-up in commodity prices, the country’s financial regulator said.

Wimboh Santoso, head of Indonesia’s Financial Services Authority (OJK), said he was confident the sluggish bank lending that has hobbled South-East Asia’s biggest economy was coming to an end.

Loan growth in Indonesia has fallen below 10% since the start of 2016, compared with more than 20% during the commodity boom years before that.

Bank loan penetration in Indonesia, where only one in three adults have bank accounts, was around 34% of gross domestic product in 2015, among the lowest of Asia-Pacific countries according to the International Monetary Fund.

As a result, the country’s financial technology (fintech) firms, which offer loans of as little as a few hundred dollars, have seen a spike in lending, leading to the emergence of peer-to-peer lending platforms.

Santoso said new rules to regulate the fintech sector would be “coming very soon”, where companies would have to clearly designate who is responsible to the customers.

“Under the incoming customer protection laws, we will ask (fintech companies) for accountability and price transparency,” he told Reuters.

Reuters reported that OJK was considering setting a cap on interest rates and the size of loans offered by fintech firms, in a move aimed at minimising the risk of defaults.

More than 300,000 people have borrowed from these firms, with total loan distribution reaching three trillion rupiah (US$218mil) as of January, versus 247 billion in December 2016, according to data from OJK.

There are 36 registered fintech firms operating in Indonesia, and 42 others are in the process of being approved, according to OJK.“If the number of companies becomes huge, we are thinking we will have a self-regulatory organisation,” Santoso said.

He was in London to promote foreign investment, which he described as crucial to solving Indonesia’s massive funding shortfall and as a way to encourage consolidation among the country’s more than 100 banks.

“A lot of foreign banks are interested in coming to Indonesia,” Santoso said. “With more investors interested to come, the more opportunities they will bring. We will let them come, but only if they stay permanently in Indonesia.” He was still considering a deal that would see Japan’s Mitsubishi UFJ Financial Group take control of PT Bank Danamon Indonesia, the country’s fifth-largest bank.

“We’ve asked them to submit a more detailed medium to long-term business plan,” he said.

If successful, the transaction may mark the biggest acquisition of an Indonesian firm on record and would be a rare major deal by an overseas lender in Indonesia’s banking sector after caps on foreign ownership were introduced in 2012. — Reuters

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