Economic Analysis - Banks' Performance To Improve In 2018 - MAY 2018

BMI View: Although credit demand in Indonesia remained sluggish for most parts of 2017, we expect loan growth to pick up to 10.0% by end-2018. Credit growth is usually a lagging indicator, and we expect further improvements in the macroeconomic backdrop to eventually feed through into higher borrowing. Net interest margins are likely to remain under pressure, but lower provisions should be supportive of overall profitability.

We continue to hold a positive outlook on Indonesian banks over 2018 as they remain equipped with ample capital and liquidity. Although the sector faced soft loan demand in 2017, we maintain our view for loan growth to pick up slightly over the coming quarters on the back of a continuously improving macroeconomic backdrop. This informs our forecast for credit growth to come in at 10.0% by end-2018, up from 8.4% at end-2017. Stronger economic growth should also bode well for asset quality, thereby lowering provisions and supporting earnings, despite narrowing net interest margins (NIM).

Sustained Growth Recovery To See Loan Demand Pick Up

The Worst Is Over
Indonesia - Gross Non-Performing Loans, % Of Total Loans

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