Mandiri Sees Slower Lending as Interest Rates Rise

PT Bank Mandiri, Indonesia’s largest lender by assets, said profit and loan growth will be hurt by higher interest rates and fuel prices, foreshadowing the economic impact from this month’s policy tightening.

Lending may rise 19.5 percent to 20 percent in 2013, from an earlier target of about 20 percent to 22 percent, President Director Budi Gunadi Sadikin told reporters in Jakarta today. The bank is lowering its 2013 profit target by 400 billion to 500 billion rupiah ($40 million to $50 million) because of the higher cost of funds and plans to increase provisioning, he said, without specifying the type of profit he was referring to. The company hasn’t released a full-year net income target.

Indonesia raised domestic fuel prices this month for the first time since 2008 to cut subsidy costs and stem energy imports that have hurt the rupiah, while the central bank raised its benchmark rate for the first time since 2011 to contain inflation expectations. The measures may pose a further drag on growth, already forecast by the central bank at as little as 5.9 percent this quarter as regional expansion slows.

“Banks can’t avoid raising rates and we know that with the current conditions our consumers’ ability to pay debt may decline,” Sadikin said. “That’s why we need to be conservative by adding provisions to anticipate higher non-performing loans, while lending demand may decline.”

Bank Mandiri plans to raise lending rates to some customers next month, Sadikin said. The bank expects a “slight” margin squeeze, he said, after Bank Indonesia raised the reference rate by a quarter of a percentage point to 6 percent this month.

Growth Forecast

Growth in Southeast Asia’s biggest economy will be at the lower end of a 5.9 percent-to-6.1 percent forecast range in the second quarter, Bank Indonesia Governor Agus Martowardojo said in a speech in Jakarta today. Gross domestic product rose 6.02 percent in the January-March period from a year earlier, the 10th consecutive quarter that growth exceeded 6 percent.

Indonesia needs lending growth of 20 percent to 21 percent to meet its GDP estimate for this year, central bank Deputy Governor Halim Alamsyah said in Jakarta today. The authority cut its 2013 economic expansion forecast in April to between 6.2 percent and 6.6 percent from the previous estimate of 6.3 percent to 6.8 percent, citing the drag on exports caused by the recession in Europe.

The current-account deficit will probably widen this quarter from the previous three months on lower-than-expected non-oil exports, Martowardojo said.

The inflationary impact from the fuel-price increase will be temporary and inflation will return to levels prior to the price adjustment in the first quarter of 2014, Martowardojo said. Consumer price gains can meet the government’s 7.2 percent 2013 target if transport and food costs are well-managed, he said.

“After the government increased fuel prices, we foresee that the reference rate may rise 50 to 75 basis points this year to manage inflation, which may accelerate above 7 percent,” Sadikin said. “But we do believe that our economy is stronger than in 2008 when the government also increased fuel prices.”

(Company corrects to say president director was referring to profit target instead of margins, in first two paragraphs of story published on June 27.)
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