Indonesian bank loans to accelerate 13% by 2020

Working capital and consumer loans are set to recover.

Indonesian banks can expect their loan portfolios to pick up 13% YoY in 2020 from 11% in 2019 amidst a rebound in working capital and consumer loans, according to from UOB Kay Hian.

Loans grew by 10% in the first half of the year, slower than 12% in the same period in 2018. However, investment loans expanded by 14%, suggesting the strong confidence of companies in the medium-term performance of the economy.

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With the growth in loans, banks are also expected to keep asset quality at health levels with the non-performing loan (NPL) ratio tipped to hold steady. The bad loan ratio was stable at 2.5% in the first half of 2019 from 3.2% in July 2016.

“Although there are concerns over asset quality, we expect a stable exchange rate to lead to stable NPL ratios,” Raphon Prima, analyst, at UOB said in a report. “[T]he market is concerned over the asset quality of corporate loans due to problems at Krakatau Steel and Duniatex. However, these cases were due to their internal problems,”

Rate cuts are also expected to boost net interest margins, a common measure of profitability. Deposits will also recover to 10% in 2020 driven by a stable rupiah after 6% growth in 2018.