Wimboh Santoso, chairman of the OJK's board of commissioners. (Antara Photo/Aprillio Akbar)

Credit Growth Will Recover in 2020: OJK


JANUARY 16, 2020

Jakarta. Indonesian banking loan expansion is set to recover this year after experiencing a significant slowdown in 2019, with completion of key infrastructure projects and the government's continuing structural reform providing a supportive environment for loan demand to pick up. 

The Financial Services Authority (OJK) has projected that credit will grow between 10 and 12 percent this year, almost double last year's 6.08 percent. The projection is more optimistic than the 10 percent growth most lenders put in their business plan (RBB). 


In 2019, banking credit growth was dominated by the construction and household consumption sectors, each of which expanded by 15 percent. Investment loans also increased by 13 percent, showing potential for future real sector growth.

"The OJK is optimistic the improvement in economic growth and positive performance of the financial services sector will continue in 2020," Wimboh Santoso, chairman of the OJK's board of commissioners, said in the 2020 Financial Services Industry Annual Meeting in Jakarta on Thursday.  

The largest economy in Southeast Asia was projected to expand by 5 percent last year, its slowest pace since 2016. The Central Statistics Agency will announce the official gross domestic product figure on Feb. 5. 

Wimboh said global economic slowdown and geopolitical turmoils still cast shadows over Indonesia's economy this year.

But the completion of several strategic infrastructure projects and the government's consistency in carrying out structural reforms, including its insistence on making regulation-busting omnibus laws a reality, should be enough to accelerate economic growth. 

The government and Bank Indonesia (BI), the central bank, have projected an economic growth of 5.3 percent this year. 

BI had cut its benchmark interest rate four times since July to stimulate credit growth, before pausing in November and December. However, the impact of the cuts on lending growth has been limited and economic growth remains sluggish.  

Some economists have argued that the central bank may continue cutting the interest rate this year to boost economic growth, as a limited tax base caps the government's ability to use fiscal policy as a stimulus. 

"If the economic growth fails to pick up, we think it is much more likely that further monetary easing will be delivered, rather than an expansionary fiscal spending push," Arup Raha and Chandresh Jain, economists at BNP Paribas, wrote in a recent note to clients.

"Our forecast calls for up to three more BI rate cuts, assisted by BNP Paribas US economists' view that the Fed will cut rates twice more in the first half of 2020," they wrote. 

Banking System Stability

The OJK said the financial services sector has remained stable, supported by adequate capital and liquidity levels and an unchanging risk profile.

Banks' capital adequacy ratio (CAR) was at 23 percent last year, well above the 8 percent requirement. Lenders also had sufficient liquidity with a loan to deposit ratio of 94 percent. 

Their gross non-performing loan (NPL) ratio was at 2.5 percent in 2019, well below the 5 percent standard. 

Net interest margin (NIM) was down to 4.9 percent, from 5.1 percent in 2018 as the average loan interest rate fell to 10.5 percent at the end of 2019 from 10.8 percent a year earlier, Wimboh said.

"Seeing these data, we are optimistic the banking sector will remain stable even when credit growth is still prudent with narrowing liquidity and well-maintained credit risk," Wimboh said.