As expected, credit growth in Indonesia slowed in 2015 amid the nation's overall economic slowdown. Loan growth was particularly affected by weaker demand for property and working capital loans. Indonesia's gross domestic product (GDP) growth in 2015 is estimated to have slowed to 4.7 percent year-on-year (y/y), the country's slowest growth pace since 2009. In its January policy meeting Bank Indonesia decided to cut its key interest rate by 25 basis points to 7.25 percent, a move that should encourage loan growth this year in Southeast Asia's largest economy.
Based on the latest data from Indonesia's central bank, total credit growth in Indonesia during 2015 expanded by a mere 10 percent (y/y) to IDR 4,083 trillion (approx. USD $296 billion), failing to fall within the central bank's target range of 11-13 percent (y/y). In 2014 Indonesia's credit growth expanded by approximately 11 percent (y/y).
Loans in Indonesia's property industry grew 12 percent (y/y) to IDR 620 trillion (approx. USD $45 billion) in 2015, considerably down from the industry's growth pace of 17 percent (y/y) in the preceding year, due to weak demand in the construction sector and weak mortgage demand.
Meanwhile, working capital loan growth also slowed, primarily due to weak demand from the trade, hotel, restaurant and manufacturing sectors. Last year, Indonesia's total working capital loan growth grew 7.3 percent (y/y) to IDR 1,914 trillion (approx. USD $139 billion), from a 11 percent (y/y) growth pace in the preceding year.
Regarding the year 2016, Indonesia's central bank (Bank Indonesia) targets a credit growth rate between 12 and 14 percent (y/y). Accelerating loan growth is expected to come on the back of Indonesia's lower borrowing costs. After having cut its BI rate by 0.25 percent in January, analysts expect to see another rate cut in 2016.