Jakarta. An expected rise in lending following the government's plan to cap deposit interest rates would offset any excesses Indonesian banks stand to gain from the policy this year, according to global rating firm Standard & Poor's Financial Services.

Standard & Poor's has maintained a stable outlook on Indonesia's banking sector, which is projected to remain one of the most profitable in the world.

The Financial Services Authority (OJK) plans to cap the interest rates state-owned banks pay on customers' time deposits starting from next month. It also seeks to ease requirements on the opening of branches or the launch of new products for banks that are keen to narrow their net interest margins.

These plans are part of an effort to force lenders to provide cheaper loans, which would boost the economy, following the central bank, Bank Indonesia's lead in cutting its benchmark interest rate by 75 basis points so far this year.

"So maybe the banks are not going to like it, but the devil is in the detail. It is always like this in Indonesia. The government is coming up with all these ideas. They are testing the waters," Standard & Poor's corporate credit analyst Xavier Jean said in a recent interview.

"But if that happens, you can see it might be easier for the customers to get cheaper loans. So I guess this kind of thing at the end of the day helps [consumer] confidence," he said.

Bank Indonesia forecast loan growth at 14.1 percent for this year, up from 10.5 percent in 2015. Loan growth in the country is expected to reach 16 percent by 2018, nearly the same level forecast for 2017, Deputy Central Bank Governor Perry Warjiyo said on Wednesday (23/03).

The ratings agency projects the Indonesian banking industry's return on assets – an indicator of how profitable a company is relative to its total assets – to reach 2 percent this year, higher compared to the global standard.

However, Standard & Poor's has warned that the banks' asset quality may weaken this year on the back of slower growth and higher credit stress, particularly due to a weaker micro-, small- and midsize-enterprise segment and commodity sectors, which suffered from low global prices.

Non-performing loans are projected to increase to between 3 percent and 4 percent of the total loans in 2016, compared to 2.7 percent in November 2015.

Additional reporting from Reuters