Indonesia BCA Sees Lending Slowdown Surprising Policy Makers

PT Bank Central Asia, Indonesia’s second-biggest lender by market value, expects the country’s loan growth to slow more sharply than policy makers expect as cash supply and economic growth decline.

Credit in Southeast Asia’s biggest economy has grown 3.5 percent this year through May, so full-year expansion will fall short of the 15 percent to 17 percent estimated by Bank Indonesia and the Financial Services Authority, BCA’s President Director Jahja Setiaatmadja said in an interview yesterday. Loans grew 17.4 percent in May year-on-year, slowing from 21 percent for 2013, according to Bank Indonesia data compiled by Bloomberg.

Indonesia’s economic expansion may undershoot official estimates to grow realistically at around 4.5 percent to 5.2 percent, as the need to contain a current-account deficit limits room for growth, Setiaatmadja said. The country’s next government will need to cut fuel subsidies to help fund infrastructure to boost economic activity, he said.

“Growing at that level will help to guard liquidity in the market,” Setiaatmadja said in Jakarta. “We can’t grow above 6 percent as in previous years since that caused huge imports,” Setiaatmadja said, adding he expects BCA’s loan growth to be in line with the industry.

The current-account deficit widened to a record in the second quarter last year, leading the central bank to its most aggressive rate-tightening cycle in eight years to damp the economy and shore up a weakening rupiah. Policy makers aim to narrow the deficit to 2.5 percent of gross domestic product by the end of 2014, from 3.3 percent last year. Bank Indonesia expects 2014 GDP growth of as much as 5.5 percent.

The rupiah has gained 1.2 percent this month on expectations a presidential election win for Joko Widodo would lead to less red tape and more infrastructure spending. The currency should be fundamentally valued at around 11,200 per dollar to 11,500 per dollar, Setiaatmadja said.

BCA, the largest non state-owned bank by assets, expects to get a license next month to set up a life insurance unit, with investment of as much as 200 billion rupiah ($17 million), he said. The lender’s stock rose 0.7 percent as of midday in Jakarta, taking it up 18 percent this year to make it the most expensive Indonesian bank on a forward earnings basis.

Before it's here, it's on the Bloomberg Terminal.