In 2016 credit growth in Indonesia is targeted to grow by 12 - 14 percent year-on-year (y/y) compared to a growth realization of 10.42 percent (y/y) in 2015. Demand for credit is estimated to grow strongly in the second half of the year due to demand originating from the construction, infrastructure and consumer sectors. Bank Indonesia Governor Agus Martowardojo said these improving conditions are (partly) caused by the series of economic stimulus packages that have been unveiled by the government since September 2015. These packages include deregulation measures, (tax) incentives, measures to boost purchasing power, and - more generally - aim at enhancing the attractiveness of Indonesia's investment climate (see the table at the bottom of this page). As a result Indonesia's real sector is expected to expand while the start of costly infrastructure and construction projects will also boost demand for bank loans across the archipelago.

However, in January 2016 credit growth in Indonesia's banking sector was still sluggish at +9.53 percent (y/y) according to the latest data from the country's Financial Services Authority (OJK). Bank Indonesia Governor Martowardojo said this bleak performance comes on the back of companies' relatively weak appetite for capital expenditures due to weak exports-imports amid persistent low commodity prices.

Irwan Lubis, Deputy Commissioner for Banking Supervision at Bank Indonesia, said demand for credit in Indonesia will improve in 2016 due to the acceleration of economic growth and the lower interest rate environment. Indonesia's economic growth this year is estimated to fall somewhere in the range of 4.9 - 5.3 percent (y/y), up from 4.79 percent in 2015. Meanwhile, Bank Indonesia's decision to cut its benchmark interest rate (BI rate) to 6.75 percent at its March policy meeting will give rise to higher credit demand as borrowing costs become less expensive. During the first three monthly policy meetings the central bank of Indonesia cut its interest rates by 0.25 percent, each meeting, from 7.50 percent at the year-start to 6.75 percent currently.

Overall Performance Indonesian Banks:

 2012  2013  2014  2015
Net Profit
(in IDR trillion)
  92.8  106.7  112.2  104.6
Net Interest Income
(in IDR trillion)
 391.3  458.2  568.0  646.6
Total Assets
(in IDR trillion)
4,262.6 4,954.5 5,615.2 6,132.6
(in IDR trillion)
2,707.9 3,292.9 3,674.3 4,057.9
Third-Party Funds
(in IDR trillion)
3,225.2 3,664.0 4,114.4 4,413.1
Loan-Deposit Ratio (LDR)
  83.6   89.7   89.4   92.1
Capital Adequacy Ratio (CAR)
  17.4   18.1   19.6   21.4
Net Interest Margin (NIM)
   5.5    4.9    4.2    5.4
Return on Assets (ROA)
   3.1    3.1    2.9    2.3

Source: Investor Daily

Although lower interest rates also imply that banks will generate less earnings from credit is sells to people and businesses, Lubis says the lower cost of funds and the lower operational costs will offset this impact. As such, he sees overall net profit growth in the banking sector rising this year. Last year, overall net profit of banks declined 6.7 percent (y/y) to IDR 104.6 trillion (approx. USD $7.9 billion).

In February 2016 Indonesia's Financial Services Authority (OJK) unveiled its plan to lower state-owned banks' net interest margin (NIM) to the range of 3 - 4 percent in a bid to push the country's (high) lending rates down (to single digit figures), hence boosting credit growth and economic activity. A lower NIM implies banks are less profitable (which also means lower dividend payouts for shareholders). In theory, a lower NIM should encourage a larger customer base due to lower borrowing costs. However, there may be limited room to increase Indonesian banks' customer base as a relatively large portion of the Indonesian population (especially the rural population) is still financially illiterate, living without banking services.

Domestic players in Indonesia are optimistic about the estimated performance of the banking sector this year. However, Fitch Ratings is less positive about Indonesia's banking sector in 2016. Although Fitch Ratings states that the fundamentals of Indonesian banks are strong (particularly the bigger banks), it sees slowing profitability in this sector, higher credit costs and increasing non performing loans in 2016. The challenges that the Indonesian banking sector faces in 2016, according to Fitch Ratings, are limited economic acceleration and persistently low commodity prices. It also sees Indonesia's gross non performing loans rise from 2.2 percent to 2.5 percent this year.

Financial Performance Selection of Indonesian Banks (in IDR trillion):

Bank Net Profit
Net Profit
Net Interest Income
Net Interest Income
Bank Rakyat Indonesia (BRI)     24.2     25.4              51.4              58.3
Bank Mandiri     19.9     20.3              45.4              39.1
Bank Negara Indonesia (BNI)     10.8      9.1              25.6              22.8
Bank Danamon      2.6      2.4              13.7              13.7

Source: various sources

Economic Stimulus Packages of the Indonesian Government:

Package Unveiled Main Points
1st 9 September
• Boost industrial competitiveness through deregulation
• Curtail red tape
• Enhance law enforcement & business certainty
2nd 30 September
• Interest rate tax cuts for exporters
• Speed up investment licensing for investment in industrial estates
• Relaxation import taxes on capital goods in industrial estates & aviation
3rd 7 October
• Cut energy tariffs for labor-intensive industries
4th 15 October
• Fixed formula to determine increases in labor wages
• Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
5th 22 October
• Tax incentive for asset revaluation
• Scrap double taxation on real estate investment trusts
• Deregulation in Islamic banking
6th 5 November
• Tax incentives for investment in special economic zones
7th 4 December
• Waive income tax for workers in the nation's labor-intensive industries
• Free leasehold certificates for street vendors operating in 34 state-owned designated areas
8th 21 December
• Scrap income tax for 21 categories of airplane spare parts
• Incentives for the development of oil refineries by the private sector
• One-map policy to harmonize the utilization of land
9th 27 January
• Single billing system for port services conducted by SOEs
• Integrate National Single Window system with 'inaportnet' system
• Mandatory use of Indonesian rupiah for payments related to transportation activities
• Remove price difference between private commercial and state postal services
10th 11 February
• Removing foreign ownership cap on 35 businesses
• Protecting small & medium enterprises as well as cooperatives