Bank Central Asia Reins in Lending as Indonesian Bad Loans Grow

  • Caution over lending has helped BCA share price outperform
  • Indonesian government wants banks to boost their lending

Bank Central Asia, Indonesia’s largest bank by market value, is reining in its lending plans for next year as the economy slows and bad debt increases.

In another sign of the caution that has helped BCA’s share price outperform its peers this year, the bank expects its loans will grow by less than 10 percent in 2016, slower than the 12 percent expansion seen this year, according to Chief Executive Officer Jahja Setiaatmadja. Rising non-performing loans in Indonesia and an economic slowdown have made the bank more wary about extending credit.

“We cannot avoid the weak economic condition now and the consequence is NPLs will increase,” Setiaatmadja said in a phone interview from Jakarta last week. “Once we think everything is okay, we can ask our branches to file out more loans.”

The reduced target may increase the Indonesian government’s challenge as it tries to boost bank lending in order to revive an economy growing at the slowest pace since the global financial crisis in 2008.

Stays Conservative

BCA’s target is well below the 14 percent-16 percent loan growth for next year projected by state-owned Bank Mandiri, Indonesia’s largest bank by assets, in September. It is also below the average 2016 loan growth of 12 percent-13 percent for all Indonesian banks forecast last month by Muliaman Hadad, chairman of Indonesia’s Financial Services Authority, the bank regulator.

Setiaatmadja said that BCA has enough capital and liquidity to boost its loan book by 15 percent for next year, but the bank prefers to stay on the “conservative side” with its lower target until the economy improves.

BCA’s cautious approach has helped the bank’s share price outperform its local peers this year, as well as keep its bad loan ratio below the Indonesian average. The stock is up 1 percent so far this year, compared with the 7.2 percent decline in the Jakarta Stock Exchange Finance Index, which tracks 86 local banks.

BCA’s non-performing loan ratio stood at 0.7 percent at the end of September, compared with an industry average of 2.3 percent. Setiaatmadja said he expects BCA’s ratio to edge up to around 1 percent to 2 percent next year, while the average for all Indonesian banks may climb to between 3 percent and 4 percent.

Slowing Economy

Weak commodity prices and slowing domestic consumption have hit the profits of Indonesian companies, sending share prices lower. The benchmark Jakarta Composite Index is down 12.8 percent so far this year, heading for the worst drop since 2008.

Founded in 1957, BCA is the only one among Indonesia’s top four banks in private hands. FarIndo Investments Ltd., controlled by Indonesia’s richest man Budi Hartono and his brother Bambang, owns 47.2 percent of the bank, according to BCA’s website.

Its return on equity of 22 percent in the third quarter of this year was well above the average for major Indonesian banks of 13.5 percent.

“Investors seem to be drawn to the bank’s continued prudent credit cost policy and conservative loan underwriting, which have been carried out in the past decade,” Igor Nyoman, a banking analyst at BNP Paribas SA in Jakarta said in an e-mail. “The superior price performance of BCA should continue given its strong credit quality management and solid NPL buffers, differentiating the bank from peers.”

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