Indonesia eyes banking boom

Indonesian banks will enjoy “more than 12 per cent” loan growth this year due to a recovering global economy and rising commodity prices, according to Jakarta’s financial regulator.

Wimboh Santoso, head of Indonesia’s Financial Services Authority (OJK), said he was confident feeble bank lending that had hampered economic development was over.

Loan growth in Indonesia has fallen below 10 per cent since early 2016, compared with more than 20 per cent during the preceding commodity boom.

Two out of three adult Indonesians do not have a bank account.

Bank loan penetration in Indonesia was around 34 per cent of GDP in 2015, among the lowest in the Asia-Pacific, according to the International Monetary Fund.

Indonesian financial technology or fintech firms, which offer micro loans, have seen a rise in borrowing through peer-to-peer lending platforms.

Santoso said fintech regulations would be “coming very soon” to make lenders designate who was responsible to the customer.

“Under the incoming customer protection laws, we will ask [micro-lenders] for accountability and price transparency,” he said.

The OJK is reportedly considering a limit on interest rates and loans that can be offered by fintech firms, to cut the risk of defaults.

More than 300,000 people, a tiny proportion of Indonesia’s population, had borrowed an estimated US$218 million by January, the OJK reported.

There are 36 registered fintech firms operating in Indonesia and 42 more applying for approval, according to OJK.

Santoso said he was still considering a deal enabling Japan’s Mitsubishi UFJ Financial Group to take control of PT Bank Danamon Indonesia, the country’s fifth-largest bank.

Indonesia is on a global roadshow to attract investment in roads, airports and power plants. Planning minister Bambang Brodjonegoro has visited Australia, Ireland and the UK in a bid to attract US$3 billion in pledges this year.

“We understand there are a lot of long-term funds, all over the world, looking for higher yield, especially pension funds and life insurers, as well as sovereign wealth funds,” Brodjonegoro said in London last week. “What we can offer them is growth opportunities. We are trying to lure these funds to start taking a look at infrastructure in emerging economies like us.”

Indonesia’s 5-per-cent growth is among the fastest in the G20 but Brodjonegoro said investment could boost growth closer to 7 per cent.

“We need to have higher investment growth, probably 8 per cent, 9 per cent or even close to 10 per cent,” he said. “When we look at our neighbours’ growth, like Malaysia, Singapore or Thailand, when global demand is stronger, suddenly their economic growth jumps higher than our economic growth. They have been able to capture the better global demand.

“We want to make these financial investors also look at Indonesia as a potential,” Brodjonegoro said. “What surprised me, for example, when I went to Australia for a similar roadshow, some fund manager in Australia had already invested in a toll road in Mexico. They go for a toll road in Mexico when Indonesia is just north of Australia.”


Indonesian infrastructure is in need of investment. Picture credit: Wikimedia