PROJECTION OF CREDIT GROWTH 2014

Bank Indonesia predicted credit growth would slowdown in 2014 in the range of 15.3% - 16.6%. The ratio of NPL would probably slightly increase, triggered by increase of credit interest, in the range of 2.8% - 3.1%.

BI’s Governor Agus Martowardojo stated that in 2014 effort of economic stabilization would still be exercised, among others to make sure that deficit in current account could be controlled to be at sustainable level.

Although credit growth might slowdown next year, economic growth as a whole would still be better at 5.8% - 6.2%. The growth level was triggered by credit growth. If credit growth was too high, it was feared that it would create undesirable pressures.

Economic growth was supported by export performance which was expected to improve although moderately. Besides, domestic demand was predictably increasing in line with increased income, inflation which lessened to around 3.5% - 5.5% and Election expenses.

Meanwhile this year BI predicted economic growth to be in the range of 5.5% - 5.9%. Credit growth was predicted to be around 19.1% - 20.4% with NPL probability around 2.3% - 2.6%. BI pled banks to watch on macro economic risk which might increase risk in banking business.

BI had asked banks to control credit growth this year. At the beginning banks set target for credit growth on the range of 23%- then 20%, meaning banks’ credit might grow by above 20% provided it was adjusted to the real sector and capital adequacy.

However, credit growth must be halted for economic sector which contributed to import increase, whereby deficit of current transaction [DTB] could be downsized to the level of 2% against GDP. The present position was 4.4% to GDP which was not ideal.

It was norteworthy that, as if following BI’s policy some banks seemed to lower their credit growth projection in the range of 17% - 19% for next year. It was still above BI target but below 20% which indicated slowdown in credit expansion. Only in the corporate segment some banks were still aggressive in credit pipelining especially foreign banks.

A number of branch offices of foreign banks whose shares were dominated by foreign investors were increasing credit extention to corporations, among others by syndication scheme. Corporate customers’ zest in financing by the scheme increased since the interest offered were competitive compared to bonds or other schemes.

An example was Citibanks NA Indonesia, who claimed  that the total commitment of syndicate creditors coordinated by Citibank this year was targeted to reach USD 1 billion. By early year already a deal of USD 300 million was agreed upon, i.e. around USD 200 million for Astra Sedaya Finance and PT Bank DBS Indonesia who was mandate arranger for syndicated loan worth USD 500 million to PT Charoen Phokphand Indonesia Tbk [CPIN].

As with national banks, there were two corporation credit extended to two banks, i.e. PT BNI Tbk [BBNI] and PT Bank Danamon Indonesia Tbk [BMDN]. According to the directors the economic slowdown going on should be an opportunity for the company to invest so demand for credit investment was notably high.

Financial report showed that BNI booked credit extention growth of 27.3% in quarter III/2013 to become Rp.234 trillion. This attainment was higher than the average industrial growth at 22.2%. The high credit growth was driven by increased outstanding which was significant at the corporate segment at 58% to become Rp.102.3 trillion.

Some banks were known to be enhancing Reserves for Loss Caused by Value Contraction [CKPN] to suppress ratio of NPL. The Board of Directors disclosed that the uplifting was necessary to anticipate risk due to global economic uncertainty. Risk also came from a combination of economic slowdown, increased bank interest and Rupiah fluctuation.

PT BNI had increased coverage ratio to 125% against the previous 125% in quarter III 2013. This was to anticipate the economic condition of next year which was predicted not to be bright. Therefore BNI set credit growth at the level below industry at around 18%-20%.

Credit growth projection for next year by BI or by banks was in reverse ratio against APBN ratio 2014 which posted significant increase. By commonsense, if budget increased, credit expansion should be more aggressive, but that was not the way things were because to consider risk, national banks were still conservative and only dare to set credit growth fore next year at around 17%-19%.

As known, the Plenary Meeting of Parliament decided to pass the Bill on APBN State Budget 2014 as Law. Thereby state budget for 2014 was agreed at Rp1,842.495 trillion. Of this amount Central Government expenditure was Rp1,249.943 trillion and transfer to the regions Rp592.55 trillion.

The Central Government’s expenditure breakdown was: employees Rp263.98 trillion, buying of goods Rp201.89 trillion. Capital expenditure Rp205.84 trillion, energy subsidy Rp282.1 trillion, non-energy subsidy Rp51.58 trillion, grant Rp3.54 trillion, social aid Rp55.86 trillion and other expenditures Rp36.9 trillion.

Ministries and institutional expenditure in 2014 was agreed at Rp637.84 trillion, educational budget Rp368.899 trillion. Meanwhile fund for transfer for the regions in 2014 amounting to Rp592 trillion consisting of Balancing Budget Rp487.93 trillion and special economic fund and adjustments Rp104.62 trillion.

Balancing fund consisted of Shared Dividend Fund [DBH] Rp113.71 trillion, General Allocation Fund [DAU] Rp341.22 trillion, Specific Allocation Fund [DAK] Rp33 trillion. In this case it was proposed to increase DAU portion against domestic income [PDN] net of at least 26% up to 28% to be discussed at preliminary meeting RAPBN 2015.

Based on state’s income calculation 2014 of Rp1,667.14 trillion and State’s budget Rp1,842.495 trillion it was agreed size of deficit at 1.69% of GDP or Rp175.354 trillion. This ratio lessened from 2013 amounting to Rp224,2 trillion or equal to 2.38% against GDP.

Income was from various resources. Firstly, domestic income amounting to Rp1.,665.78 trillion and income from grant Rp1.36 trillion. Secondly, domestic income consisted of income from tax Rp1,280.39 trillion and non-tax income [PNBP] Rp385.39 trillion. Thirdly, tax income was from Income Tax [Pph] Rp586.31 trillion; value added tax [Ppn] Rp495 trillion. Land and Building Tax [PBB] Rp25.44 trillion, taxes Rp116.28 trillion, other tax Rp5.49 trillion and international trading tax Rp53.91 trillion.

Fourthly, Non Tax State Income [PNBP] consisted of income from natural resources Rp225.95 trillion, income from BUMN dividend Rp40 trillion, other PNBP Rp94.09 trillion and income from Public Service Board [BLU] Rp25.35 trillion. Hence tax ratio in 2014 was 12.35% and cost recovery worth USD 15 billion.

So state’s expenditure was agreed at Rp1,842.49 trillion, an increase of 6.74% against previous year’s budget Rp2,726 trillion. The deficit of Rp175.35 trillion would be covered by domestic financing Rp196.26 trillion and overseas financing Rp20.9 trillion.

Somehow the deficit was higher than initial calculation in RAPBN Budget plan 2014 amounting to Rp154.2 trillion or 1.49% of GDP. Plenary meeting of House had also passed  the Budget Bill 2014 as law. most of the macro economy basic assumption were undergoing change due to the dynamics of domestic and global economy.

Previously the Budget Committee of House, the Government and BI had agreed on the magnitude of macro-economy basic assumptions 2014. With ratification of APBN 2014 Bill as Law the macro economy assumption foir next year is as follows:

Firstly, Indonesia’s macro economic projection of 6% or lower than the Government’s recommendation at 6.4%.

Secondly, inflation rate to be targeted at 5.5% against the previous 4.5%

Thirdly, Rupiah exchange rate value against USD becomes Rp10,500 against the previous Rp9,750 per USD.

Fourthly interest rate for State Promissory Notes [SPN] three months according to the initial proposal of 5.5%.

Fifthly, price of Indonesia’s crude oil became USD 105 per barrel against the previous USD 106 per barrel.

Sixthly, lifting of oil and gas remained to be 2.11 million barrels per barrel consisting of oil lifting 870,000 barrel/day and lifting of gas 1.2 million barrels equal to oil/day.

From the above quantitative picture, it seemed that BI planned to put brakes on credit growth next year toward achieving 2 strategic objectives in their domain.

Step One, to control inflation on the consumption side, as seen from re-regulation in consumptive credit such as increase of LTV for mortgage or automotive credit.

Step Two to improve DTB and hopefully to score surplus in current transaction through stopping of productive credit. This was signified by implementation of policy on increase of secondary minimum mandatory giro [GWM] from 2.5% to 4% and policy of lowered Loan to Deposit Ratio [LDR] to be at 92% maximum only.

In that case, to secure bank performance, it should be done the way it was in previous years by maintaining attainment when credit growth was above 205%, bankers should be wise enough to seek for Fee Based Income. This was the challenges of the banking sector for next year. 

Business News - November 1, 2013