The Financial Services Authority (OJK) reported on Monday (Sept 19) that the national banks booked net profit of Rp64.85 trillion for January-July 2016 period, grew by 9.79% from Rp59.07 trillion in the corresponding period of 2015. Per June 2016, the banks profit rose 8.2%. The banks’ net interest income grew higher than the growth of interest expense (1.36% year-on-year). Interest income rose 6.74% to Rp394.7 trillion from previous Rp369.79 trillion. Net interest income grew by 12.87% to Rp194.9 trillion. Net interest margin (NIM) increased to 5.59% in July 2016, from 5.32% in July 2015. Non interest income also rose 32.55% to Rp141.28 trillion while non interest expense increased 23.77% to Rp254.13 trillion.

The OJK, however, noted that the lending growth slowed to 7.74% in July 2015, from 8.9% growth in June 2016. Lending reached Rp4,130.44 trillion per July 2016. The quality of lending also declined as non performing loan (NPL) increased to 3.18% in July from 3.05% in June 2016. While loan provision rose to Rp134.23 trillion from previous Rp129.65 trillion.

The declined lending or credit demand by business sector is due to few expansion and investment plans ahead of the end of the year. Although the Indonesian economy is recovering—as reflected in accelerated GDP growth figures in the first two quarters of the year—demand from abroad for Indonesian products remains weak, and domestic demand remains somewhat subdued as well (as reflected in the nation’s structurally weakening export and import figures over the past 15 months).

In recent years Indonesian businessmen have been more cautious in terms of borrowing in foreign currency due to weak rupiah exchange rate (which plunged heavily between mid-2013 and late-2015). But not only demand for foreign-denominated credit fell, banks are also more eager to lend in the rupiah currency rather than foreign ones (therefore there also exists a push for rupiah loans on the supply side).

Given that the nation’s export performance is not expected to accelerate significantly in the period ahead, credit growth may also remain flat in the coming months. Moreover, regardless of the current economic environment, investment and business expansion usually go at a slow pace when approaching the year-end. The centrl bank (Bank Indonesia/BI) has recently revised down its outlook for credit growth in Indonesia to the range of 7-9% (y/y).

Fund Raising

PT Bank Panin Indonesia Tbk (PNBN) plans to issue bonds worth Rp1 trillion, part of its Rp10 trillion bond issue program, used to fund its lending expansion. The bonds will have tenor of 5 years offering coupon rate at 8.35-8.95% per year. The offering is scheduled for October 19-20, 2016. The bank has in second quarter of 2016 issued bonds worth Rp2 trillion. PNBN’s lending reached Rp119.65 trillion per July 2016 with third party funds totaling Rp129.89 trillion.

PT Bank Rakyat Indonesia Tbk (BBRI) has issued medium term notes (MTN) worth Rp1.92 trillion. The MTN has tenor of 370 days and carries coupon rate of 7.4%. It targets to raise Rp5 trillion from MTN issue by end this year. BBRI also plans to issue bonds worth Rp10 trillion this year, part of its Rp20 trillion bond issue until 2017. Per August 2016, BBRI’s lending grew by 17% year on year.

DISCLAIMER: AUTHOR HAS NO POSITION IN STOCKS MENTIONED

By Yohannes Obor

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