JAKARTA: Indonesian banks may struggle to maintain fast loan growth this year as their customers’ savings fail to keep pace, impacting financing for businesses and individuals.
Analysts believe local lenders need to tweak their strategies for 2025 by slowing down loan growth to keep liquidity within healthy bounds.
In its 2024 financial report, state-owned lender Bank Mandiri posted an impressive 20.7% loan growth, double the industry’s average loan growth at 10.4%.
However, deposit growth lagged significantly at just 6.8%, pushing the bank’s loan-to-deposit ratio (LDR) up from 86.8% in 2023 to a concerning 98% at the end of last year.
The LDR, a key measure of liquidity, signals risks when it climbs too high.
A high LDR suggests that a bank may lack the liquidity to handle unforeseen funding needs or take advantage of opportunities to issue more loans.
The Financial Services Authority (OJK) recommends an LDR in the range of 78% to 92% for local banks.
Similarly, fellow state-owned lender Business Network International (BNI) recorded an increase in its LDR from 85.8% to 96.1% last year, still well above the OJK’s recommended upper limit, as its third-party funds dropped by 1.2% while loan disbursement grew 10.7%.
Even the country’s largest private lender, BCA, known for maintaining a relatively low LDR, experienced an increase in the ratio from 70.2% to 78.4%.
Bank Mandiri chief economist Andry Asmoro highlighted that local lenders had capitalised on opportunities to achieve some of their strongest loan growth rates in six years. However, deposit growth lagged significantly, marking one of the weakest performances over the same period, which he attributed to financial strain on the lower-middle class.
“The average savings for customers in the under 200 million rupiah (US$122,362) savings category is just 1.8 million rupiah.
“Any price volatility leaves them highly defensive, focusing solely on basic necessities,” Andry explained.
Meanwhile, Indonesians in the upper-income segment were withdrawing funds from traditional bank savings and shifting them to higher-yielding assets like government bonds and Bank Indonesia’s securities (SRBI) or to gold, he added.
“If loan growth continues to outpace deposit growth, we project the LDR to reach 92.2% this year, 95.2% in 2026 and 97.7% in 2027,” Andry said.
Despite these concerns, the OJK stated in January that bank liquidity was still “manageable”, citing an LDR of 87.3% as of November last year.
However, the OJK acknowledged that external risks, including global uncertainty stemming from United States trade policies, could disrupt this balance.
“If these factors escalate, the risks to Indonesia’s banking liquidity will rise,” Dian Ediana Rae, the OJK’s head of banking supervision, said in a statement.
“This could lead to capital outflows, higher funding costs and reduced foreign investment inflows.”
Banking analyst Arianto Muditomo noted that tightening liquidity was likely to force banks to be more selective in loan disbursement, especially in riskier segments. He expected banks to prioritise corporate loans in sectors such as infrastructure, manufacturing and energy, aligning with the government’s strategic projects.
“Weakening spending power and struggling micro, small and medium enterprises will put pressure on the growth of consumption and small and medium enterprise loans.
“Banks are likely to tread cautiously in these segments,” he told The Jakarta Post.To reduce their LDR, Arianto suggested that banks significantly boost deposits by raising interest rates to attract customers.
However, this approach comes with a trade-off in the form of higher funding costs and hence a potential squeeze on profitability.
Doddy Ariefianto, a banking industry analyst at Binus University, argued that it would be difficult for major banks like BNI and Bank Mandiri to lower their LDRs solely by accelerating deposit growth.
He anticipates that lenders will also tighten loan disbursement.
“However, the impact on profit margins will be limited, as those banks already have loyal customers and thick margins,” he told the Post.
Sinarmas Sekuritas equity analyst Ivan Purnama Putera pointed out that BNI had already adjusted its strategy in response to the tightening liquidity, expecting slower loan growth at between 8 and 10% this year. “BNI anticipates tight liquidity to persist through the first half of 2025, driven by intense competition for funding and high SRBI yields.
“The bank expects conditions to ease in the second half of the year and is targeting an LDR of around 94% in the long term,” Ivan wrote in the February report.
BCA, too, has adopted a cautious stance, forecasting loan growth of just 6% to 8% this year, which takes into account a focus on maximising profitability by raising credit interest rates and still-weak purchasing power.
Meanwhile, Bank Mandiri still targets loan growth of 10% to 12% this year while aiming to lower its LDR to around 90%.
Ivan noted that achieving this would require deposit growth to outpace loan growth, which was a challenge given the current competitive market conditions. — The Jakarta Post/ANN
