INDONESIA needs to hit the brakes on its too-fast lending expansion trend as growth for loans has outpaced that of deposits for too long, a foreign bank representative says.

“Over the last three years, we have seen 20 to 22 per cent credit growth for the whole banking sector which is a lot, and I think a slowdown is now realistic,” Chairman of the Foreign Banks Association of Indonesia (FBAI) Joseph Abraham, said last Tuesday.

FBAI members encompass 26 foreign lenders, including ANZ, Bank of Tokyo Mitsubishi UFJ, BNP Paribas, Commonwealth Bank, DBS Bank, HSBC, JPMorgan Chase and Standard Chartered.

Foreign banks have been among those enjoying the most from Indonesia’s lucrative banking sector.

The latest statistics from Bank Indonesia (BI) shows that lending growth for foreign banks stood at 25 per cent, to reach 210 trillion rupiah ($18.7 billion) as of August this year, outpacing the industry’s average of 22.2 per cent.

But deposits failed to grow as strong as loans, with foreign banks’ third-party deposit growth rate sitting at only nine per cent in the same period this year to reach 167 trillion rupiah. This rate was below the industry’s average of 13.5 per cent.

With the widening gap between the two growth rates, the banking sector may face liquidity problems due to a rising loan-to-deposit ratio, which eventually would curtail banks’ lending, thus, squeezing their profits.

The ratio, calculated by dividing total outstanding loans by total deposits, now stood at 88 per cent, higher than 79 per cent recorded last year.

Competition for deposits is also fierce among local banks. Second quarter financial reports show that the deposit-lending growth shortfall of big lenders, Bank Central Asia (BCA) and Bank Negara Indonesia (BNI), topped 9.5 per cent and 12 per cent, respectively.

The gap between lending and deposit growth rates in the industry is now around nine per cent on average, a level that analysts consider alarming.

“Deposits are growing by 13 per cent and lending by 22 per cent; this cannot be sustained in the long run,” said Abraham, who is also President Director of Australia-based Bank ANZ Indonesia.

“You have to ensure there’s enough liquidity [...] and NPLs (non-performing loans) do not rise too fast when we have rapid expansion.”

Abraham said the central bank had been ‘sensible’ with its recent monetary tightening policies as the country needed to have steadier, more sustainable growth in the sector.

BI raised its key interest rate by 150 basis points to 7.25 per cent this year to balance lending and deposit growth as higher interest rates would discourage banks from channelling excessive lending, while at the same time persuading people to save more.However, BI Deputy Governor Halim Alamsyah said it might take one-and-a-half years for the interest rate policy to affect lending growth.

But the impact, he said, would be expedited by decelerating economic growth, given the high sensitivity of lending toward domestic demand.

He predicted that Indonesia’s credit growth might stay at above 20 per cent next year, with some election-related activities, in particular, contributing to lending expansion among local banks.

To survive in a tight-liquidity environment, many local lenders have been offering high interest rates to attract big depositors. — By arrangement with The Jakarta Post/ANN