Industry Forecast - Growth Recovery To Strengthen Banks' Performance - FEB 2018

BMI View: Although Indonesia's loan growth has remained sluggish for the most part of 2017, we expect the continued economic growth recovery over the coming quarters to push credit demand higher. Asset quality and profitability are also likely to improve in tandem.

Our view on the Indonesian banking sector has not changed much since our last analysis, and we continue to expect the industry's performance to be supported by an improving macroeconomic backdrop. This should see a gradual reduction in non-performing loans (NPLs) and a strengthening of profitability in the coming months. The fact that Indonesian banks are generally well capitalised and have sufficient liquidity will allow them to meet higher credit demand as the economy picks up pace. However, given that loan growth has remained sluggish in the year-to-date 2017, despite Bank Indonesia's (BI) cumulative 200bps rate cuts since the start of 2016, we now expect credit growth to come in at 9.0% in 2017 and 11.0% in 2018, down from 11.1% and 12.4%, respectively. This is in line with BI's credit growth forecast of 8-10% in 2017 and 10-12% in 2018.

Credit Growth To Pick Up

Loan Growth Yet To See Sustained Recovery
Indonesia - Loan Growth, % chg y-o-y
BMI, Bank Indonesia

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