Indonesian banks to see less intense loan competition in 2025

Banks are looking to solidify their market share.

Indonesian banks are expected to face “less intense competition” in the loan market in 2025 due to the high cost of funding and high loan-to-deposit (LDR) ratio.

The industry’s LDR ratio stood at 87% in August 2024, indicating a stiffer competition in low-cost funding, according to UOB Kay Hian analyst Posmarito Pakpahan.

UOBKH expects less intense competition in the loan market, which it said will keep the lending rate stable.

Cost of fund (COF) rose by over 100 basis points (bp) due to a 275bp rate hike between August 2022 and April 2024. Meanwhile, the lending rate only expanded 30bp.

“We believe one of the factors for a smaller increase in lending rates was market competition as big banks aim to solidify market share. As pressure on CoF is persistent, we expect the banks to have less intense competition in the loan market to keep the lending rate stable,” Pakpahan said in a report on Indonesian banks published in November 2024.

“We expect higher government spending and strong loan growth to support money supply [M2] growth at high single digit in 2025 which will allow the industry to achieve its loan growth target of 11% to 13%,” he added.

Amongst banks, Bank Negara Malaysia and Bank Mandiri posted a loan yield improvement or stable loan yield, respectively.

Bank Central Asia said that it believes competition will be less intense, and that it would be able to maintain its lending rates.

As of September 24, lending rate amongst Indonesian banks stood at 9.24%, whilst the 10-year Indonesia government bonds and one-month JIBOR rate stood at 6.44% and 6.66% respectively.

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