Erwin Riyanto, Deputy Governor at Indonesia's central bank (Bank Indonesia), informed that credit growth in August 2016 is most likely to touch a growth pace slightly above 6 percent (y/y), whereas in previous months credit growth in Indonesia touched 8.89 percent (June 2016) and 7.74 percent (May 2016).

In August 2015 Indonesian banks disbursed IDR 3,881.29 trillion (approx. USD $296.3 billion) in credit. If the year-on-year growth pace is indeed 6 percent, it would mean that credit disbursement stands at IDR 4,114.16 trillion in August 2016. This would also mean that compared to the end of 2015 (when credit disbursement stood at IDR 4,057.90 trillion) credit growth in Indonesia only rose 1.4 percent (year-to-date).

Demand for foreign-denominated credit in Indonesia has fallen more markedly compared to demand for rupiah-denominated credit. In recent years Indonesian businessmen have been more cautious in terms of borrowing in foreign currency due to the weak rupiah exchange rate (which plunged heavily between mid-2013 and late-2015). But not only demand for foreign-denominated credit fell, banks are also more eager to lend in the rupiah currency rather than foreign ones (therefore there also exists a push for rupiah loans on the supply side).

Sluggish exports from Indonesia (caused by weak external demand) are also a reason why Indonesian businessmen remain reluctant to obtain new loans. Given that the nation's export performance is not expected to accelerate significantly in the period ahead, credit growth may also remain flat in the coming months. Moreover, regardless of the current economic environment, investment and business expansion usually go at a slow pace when approaching the year-end.

Meanwhile, foreign-denominated third-party funds growth at Indonesian banks is negative, signalling that many export-oriented companies are eager to lower their foreign-denominated debts (which is a development that is warmly welcomed by Bank Indonesia). On a year-on-year basis foreign-denominated third-party funds in Indonesia fell nearly 14 percent, whereas rupiah-denominated third-party funds rose 9.8 percent (y/y) in June 2016.

Bank Indonesia recently revised down its outlook for credit growth in Indonesia to the range of 7 - 9 percent (y/y).