All eyes on credit quality as Indonesia’s banks bank on surging economy for growth

Banks are expected to grow an anemic 13%.

Like health buffs counting their calories and watching their weight, Indonesia’s banks are expected to remain picky in disbursing new credit, watch their credit quality, and are expected to post lacklustre growth in the process.

However, according to analysts from Maybank Kim Eng, this should help control new non-performing loans (NPL) formation, and keep a close eye on the bad debt ratio.

Maybank Kim Eng adds that banks should surge smoothly along with the economy, as 2H16 earnings are set to accelerate along with the country’s macro indicators.

“Among the factors expected to bring GDP growth back from a five-year low of 4.67% YoY in 2Q15 to our 5.04% YoY forecast for 2016, private consumption will remain the main driver,” Maybank Kim Eng said.

The robust business climate in the country has also induced a rising inflow of investment as the government reduces the red tape to lure higher domestic direct investments.

“In addition, we believe any major groundbreaking of infrastructure development in the near term should send a more positive signal about government spending (10% of GDP in 3Q15) and loan expansion, especially for the big banks (BBCA, BBNI, BBRI, and BMRI), which usually lead credit syndication to fund such projects,” Maybank Kim Eng said.