v Loan growth remains the priority — Bank Indonesia (BI) continues to focus on loan
growth as its Monetary Policy priority. It has kept the key interest rate unchanged
at a record low of 6.5%. The statement issued highlighted that growth in credit
remained slower than targeted. Its full-year inflation forecast is 4.8%, without any
administered price hikes. CIRA economists have reduced the 2010 rate hike call to
50bps this year to 7% (prev. 7.25%). Banks with a higher LDR, like BBRI and
BDMN, should benefit, while BBCA and BMRI will face pressure on asset yields.
v Loan growth trend — The BI statement mentions net increase in loans of
Rp6.25trn in Q1 CY10. As loans had contracted by Rp32trn in January 2010, this
works out to Rp38trn expansion in February and March. YTD loan growth is 0.4%
and 12M growth stands at 11%, against a BI target of 20% growth in 2010. Up to
January 2010, Consumer loan momentum remained strong, with 12M growth of
31%, followed by Investment loans at 11%, but Working Capital was weak at -4%.
Loans approvals had reached Rp202trn in January, or 14% of loans outstanding,
with a pickup in approvals for Working Capital Loans.
v Slower Q1 — One reason why BI may be concerned is that Rp6.25trn expansion in
Q1 CY10 is the third smallest expansion for a Q1 since 2004. In 2006 and 2009,
loans contracted in Q1, with FY loan growth only 14% and 10% respectively.
v Rate debate — No specific mention of lending rate, although BI alluded to the fact
that banks have been cutting deposit rates to bring down lending rates. Jakarta
Globe quoted Bank Mandiri and Busan Finance (2W financing company) that the
room to cut lending rate was limited. As per CIRA calculations, the weighted
average Lending-Deposit spread has been going up (up to January 2010) due to
improving mix (shift to consumer/Rp loans and from Time to Saving Deposits).
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