Although Indonesian consumers are increasingly spending on leisure activities and entertainment (rather than purchasing goods), local banks are still hesitant to disburse credit to sectors that support these leisure activities, such as the hotel industry.
Jahja Setiaatmadja, President Director of Bank Rakyat Indonesia (BRI), said that despite having detected a trend toward spending on leisure activities among Indonesian consumers, banks cannot suddenly start disbursing credit to those sectors that support these activities.
For example, in order to assess whether it is lucrative to establish a new hotel in a domestic tourist area in Indonesia, it is not enough to assume its occupancy rate will be 100 percent during national public holidays as this would not necessarily make it a profitable hotel. It is important to look at occupancy rates during normal days in order to know whether business of a new hotel would be sustainable. If this rate is low during normal days, then a new hotel will face big challenges to compete with its existing counterparts in that area, unless the new hotel can deliver something innovative/special.
Another challenge that is faced by the hotel industry in Indonesia is the mushrooming of guest houses, a cheaper option for tourists and - provided the service and cleanliness is good - a tempting alternative for tourists, especially domestic tourists.
Overall, local banks have disbursed a total of IDR 96.5 trillion (approx. USD $7.1 billion) worth of credit to the accommodation provider sector (which includes hotels) in the first eight months of 2017, up a modest 3.33 percent from credit disbursement in the same period one year earlier. This is a significant slowdown, considering the growth rate was 8.8 percent (y/y) in 2016, 16.7 percent (y/y) in 2015, and 24.1 percent (y/y) in 2014.
Meanwhile, the non-performing loan (NPL) ratio in the domestic accommodation provider sector rose to 4.11 percent in August 2017, up from 2.71 percent at the end of 2016, implying the quality of credit in this sector has weakened.
Credit Growth & NPL Ratio in Indonesia's Accommodation Provider Sector:
(in IDR trillion)
Source: Bisnis Indonesia