Indonesian Finance Sector to Gain From Land Law, Rating Upgrade

Rabu, 11 Januari 2012 | 08:57

The outlook on Indonesia’s banking industry will remain positive this year as the nation, which has the biggest economy in Southeast Asia, benefits from a credit-rating upgrade and the new land law, according to Deutsche Bank.Taimur Baig, director and chief economist for Indonesia at Deutsche Bank, said the ratio of the country’s lending to gross domestic product remained low. Indonesia has room to match higher ratios at other nations across the region, he said.

“Just by looking at the credit-to-GDP ratio, this country has substantial room for leveraging up. It means more credit to the private sector, households and so on,” he said in Jakarta on Monday.

The ratio of lending to Indonesia’s GDP stood at 30 percent last year, compared with 120 percent in China and 50 percent in India, according to Deutsche Bank. India has the third-biggest economy in Asia, after Japan and China.

Total loans by Indonesia was valued at Rp 2,106 trillion ($232 million) as of October last year, according to the most recent data available from Bank Indonesia.

Deutsche Bank’s report came as the central bank and the Chambers of Commerce and Industry (Kadin) jointly urged the country’s 120 commercial banks to boost their lending to aid economic growth.

Deutsche Bank forecast lending to grow by 20 percent to 25 percent this year, lower than Bank Indonesia’s forecast of a 27 percent increase. The central bank estimated loans to have risen by 23 percent in 2011.

Deutsche Bank said economic growth in Indonesia would continue this year, supported by easing inflation and stable interest rates, improving investment and rising purchasing power by the country’s rising middle class.

Analysts Raymond Kosasih and Arinta Harsono of Deutsche Bank Verdhana Indonesia said in the bank’s report titled “Outlook 2012: Boom Times Pose New Challenges” that “the bulk of capital raisings will come from middle- to small-sized banks.”

Raymond and Arinta said they expected more capital increases by mid-size banks such as Bank Tabungan Negara, CIMB Niaga and Bank Panin this year.

They said Indonesia’s banking system would have wider access to investors’ funds after Fitch Ratings last month raised the country’s sovereign debt rating one level to BBB-, the lowest investment level, for the first time since the 1997 financial crisis.

An increase in funding sources at banks would improve lending at the country’s banks, and that would increase the country’s loan-to-GDP ratio, they said.

Bank Mandiri, the country’s largest lender by assets, raised Rp 11.68 trillion in a rights offering a year ago to boost its capital, while Bank Negara Indonesia raised Rp 10.46 trillion in December 2010.

The German bank said the approval of the land acquisition bill last month coupled with the country’s efforts to speed up its infrastructure development for seaports, airports, toll roads would help push lending by the country’s lenders such as Bank Negara Indonesia, Bank Mandiri, Bank Central Asia, Bank Rakyat Indonesia and Bank Jabar Banten, the regional bank of West Java, based on their exposure to infrastructure financing.

The Deutsche Bank report said there were 25 infrastructure projects already underway or awarded to investors that were be build. Those projects were estimated to value at around $11 billion, of which typically 70 percent would be financed by loans and the remaining 30 percent from investors’ capital.

Bank Negara has a total of Rp 25 trillion in loans committed to infrastructure. In the first nine months last year, it reported Rp 18 trillion in undisbursed loans.

Bank Mandiri has Rp 22 trillion in undisbursed infrastructure loans from an estimated total of Rp 30 trillion in loans.