(Continuing) Slower Credit Growth

The credit growth in Indonesia has been slowing down since 2013. Despite whether slowing economic growth caused the slowing credit growth or the otherwise, one thing for sure is the drop in FX credit growth has weigh down the total credit growth. The significant drop in FX lending happened in mid-2015. If we look historically, the correlation between FX credit growth and the currency is negative during 2014 — mid-2015. Weaker currency discouraged FX lending. But interestingly, although Rupiah has been strengthening since Q3–2015 — YTD, the FX credit growth is still decreasing.

Source: Bloomberg, OJK (data as of Jul 2016)

I suspect this phenomenon is due to business/investment confidence issue. FX credit is closely related with export-import activity, commodity sector, and new foreign investment. Export-import activity has been sluggish following slower global growth/demand and for Indonesia case, the export-import activity is very dependent on commodity base. With the continuing lower commodity price, smaller players has been pushed to out of business while remaining players postponed their expansion plan thus explained the slower FX credit needed. While for new foreign investment, so far we still not see an accelerating rate due to classic reason: political & government policy uncertainty, no clear guidance on the ground implementation of the economic packages released in the last one year, and government intervention in some sectors adding discouragement of foreign investors.

As of Aug’16, total credit grew 6% y-y with FX credit contracted 14% y-y and Rupiah-based credit grew 9.8% y-y. Looking at current condition, it seems the slowing trend of credit growth will persist for sometime.

— -end of post #45