Indonesian banks poised for steady loan growth despite higher lending rates

Lending will be led by big banks who can lure clients from smaller players.

Indonesian banks are poised for high-single digit loan growth in the coming months even at a slightly higher lending rate environment brought about by a series of central bank hikes in accordance with the Fed, according to UOB Kay Hian.

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This comes as the market share of loans by big banks out of the sector’s total loans rose by 500 basis points to account for 53.4% ot the total market due to enhanced franchise capabilities, pricing and offering quality range of product services, attracting a growing number of clients from smaller banks.

Bank Mandiri, Bank Negara Indonesia and Bank Central Asia stand to profit the most as more than 70% of their total loan books are in variable rate terms, said UOB analyst Alexander Margaronis.

On the other hand, Bank Rakyat Indonesia stands to gain the least from higher lending rates as 97% of its consumer loans are fixed.

Pressures on net interest margin should also be contained as in the medium term as current and time deposit rates are expected to rise even as savings rate stabilise or drop, UOB added. 

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