In general, the Indonesian economy and banking industry in Indonesia in 2013 remained solid and growing with various economic indicators showing steady growth and strong sustainability against domestic
* #(+(!+*+)%ý1010%+*/ċ
Signs of Global Recovery
A sign of recovered global economy in 2013 started to emerge indicated my more vibrant economic activities in a number of developed countries. Revitalization efforts by the U.S.
central bank through a low interest rates policy and securities purchase program has shown positive results, although the results are still uncertain as a stimulus that was supposed to come from the fiscal side was not supported by sufficient capacity of the state budget.
Meanwhile Gross Domestic Product (GDP) of Japan experienced positive growth in the last 2 years, following progressive steps undertaken by the depreciation of the Yen.
Improvements in those two superpower nations were not yet able to promote the performance of Asian countries, where the main propulsion engines such as China and India were slowing compared to the previous year. The demand for Indonesian exports automatically reduced significantly, considering that these countries are major Indonesian trading partners. This condition was exacerbated by the fall in prices of major export commodities in international markets. Briefly, Indonesia’s merchandise trade performance in 2013 declined into a deficit of USD4.1 billion when compared to the previous year’s deficit of USD1.6 billion.
Macro Economy and Banking Industry
Table of the Indonesian Macro economy
Description Unit Year Quarter
2011 2012 2013 1Q13 2Q13 3Q13 4Q13
Domestic Revenues
Real GDP % yoy 6.5 6.2 5.8 6.0 5.8 5.6 5.7
Real Private Spending % yoy 4.7 5.3 5.3 5.2 5.1 5.5 5.3
Real Government Spending % yoy 3.2 1.3 4.9 0.4 2.2 8.9 6.4
Real Investment % yoy 8.8 9.8 4.7 5.5 4.5 4.5 4.4
Real Exports % yoy 13.6 2.0 5.3 3.6 4.8 5.2 7.4
Real Imports % yoy 13.3 6.6 1.2 (0.0) 0.7 5.1 (0.6)
Nominal GDP Rp trillion 7,423 8,229 9,084 2,144 2,213 2,360 2,368
GDP per capita Rp million 31 34 36 - - - -
GDP per capita USD 3,494 3,573 3,490 - - - -
Unemployment Rate % 6.6 6.1 6.3 5.9 5.9 6.3 6.3
External Sectors
Exports USD billion 203.5 190.0 182.6 45.4 45.7 42.9 48.6
Exports % yoy 29.0 (6.6) (3.9) (6.4) (5.8) (6.9) 3.4
Imports USD billion 177.4 191.7 186.6 45.7 48.8 45.9 46.3
Imports % yoy 30.8 8.0 (2.6) (0.2) (3.8) 0.9 (6.9)
Trade Balance USD billion 26.1 (1.6) (4.1) (0.2) (3.1) (3.1) 2.3
Balance of Payments % PDB 1.4 0.0 (1.0) (3.0) (1.1) (1.3) 2.3
Government Debt % PDB 13.9 14.2 14.2 14.3 14.2 14.1 14.2
Foreign Exchange Reserves USD billion 110.1 112.8 99.4 104.8 98.1 95.7 99.4
Exchange Rate (End of Period) Rp/USD 9,068 9,670 12,189 9,719 9,929 11,613 12,189
Exchange Rate (average) Rp/USD 8,773 9,380 10,451 9,694 9,784 10,649 11,597
Other Indicators
Inflation (End of period) % 3.79 4.30 8.38 5.90 5.90 8.40 8.38
BI Rate (End of period) % p.a. 6.00 5.75 7.50 5.75 6.00 7.25 7.50
Government Budget Surplus (Deficit)
% PDB (1.1) (1.8) (2.5) - - - -
Jakarta Composite Index (End of Period)
Poin 3,822 4,317 4,274 4,941 4,819 4,316 4,274
Rank of Moody’s - Long Term Foreign Currency
Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa3
From Superior To Second Layer
Indonesia’s attractiveness as an investment destination country that has attracted foreign investors over the last 5 years seemed to have weakened in 2013. The story about the displacement in the current account i.e. balance of capital transfer that is recorded by Bank Indonesia (BIw) related to trade in goods and services abroad, from a surplus to deficit, began in the fourth quarter of 2011.
That issue has a close relation to structural problems in infrastructure development, causing the export-based real sector to be hampered. Indonesia was finally considered as one of “problematic” countries called Fragile Five Countries and became a second-layer country for investment destinations.
Foreign Investment and Domestic Capital
5
14
19
2009 2010 2011
11
16
19 19 18
2012 2013
25
29 Approved FDI
(USD billion)
FDI Capital Inflow to Indonesia (USD billion)
The decline in the value of brand “Indonesia” met with a retarding flow of direct investment. Data related to Foreign Direct Investment (FDI) from the Investment Coordinating Board (BKPM) indicates that future commitments of foreign investors are increasing and have been approved by the Indonesian Government. However, realization of foreign funds flow transacted and recorded by Bank Indonesia reveals the fact that there was a slowdown, although this fact was predominantly due to possible political instability of upcoming elections in 2014.
The reduction of foreign investment flows was also experienced in the securities market, especially in the Indonesia Stock Exchange. The composition of foreign holdings in the stock market declined from 36.0 % at end of 2012 to 34.5 % at the end of 2013. The rate of stock market return of (negative) -1.0 % was the lowest in the last 5 years. At the same time, the composition of foreign holdings in Government Securities (GS) dropped 0.5 % of the total capitalization traded.
Seeing this condition of Indonesia’s external sector, the equilibrium of the balance of payments that was depressed by the decline in export value which could not be covered by the current investment is the biggest risk to sustainable
suffered a deficit of 1.0 % of GDP, considerably down when compared to 2012, which were still slightly surplus of 0.0
% of GDP. Thus, there were implications for the balance of domestic currency exchange rate due to reduced demand.
The Rupiah, which early in the year was traded at Rp9.670/
USD, gradually weakened and finally closed at Rp12.189/
USD. BI frequently intervened by optimizing foreign exchange reserves to stabilize the volatility of the Rupiah as much as possible.
Balance of Payments and Exchange Rate
Current Account
Capital and Financial Account Rupiah
2010
2009 2011
5 14
(24) (28)
11 27 2
2012 2013
40 8,500
20 9,500
- 10,500
(20) 11,500
(40) 12,500
5
25 23
USD billion Rp/USD
Response of Policy and Economic Slowdown
In response to a disturbed foreign balance sheet, monetary authority Bank Indonesia (BI) implemented a policy of contractive prudential macro and micro policy through various stages, such as raising cash advances of sharia- based mortgages and auto loans and increasing banking reserve requirements (GWM). On the fiscal side, the Government decided to raise the price of fuel oil (BBM) considering the large the needs of imports related to fuel and the disparity between actual prices of crude oil in the world and assumptions in the state budget. This step was taken after considering and appreciating that the prices of goods in the country will increase significantly, yet the increase in fuel price was needed to maintain long-term macroeconomic stability.
Inflation & Higher Benchmark Interest Rates
Inflation BI Rate
2010 2011 2009
2.8%
6.50%
7.0%
6.50%
6.00%
3.8%
2012 2013 4.3%
7.50%
8.4%
5.75%
A high rate of inflation and pressure on the Rupiah exchange rate forced BI to raise its benchmark interest rate by 175 basis points to 7.50% throughout 2013. Many other directives to curb imports through weakening domestic demand were applied not only from monetary side, but also from fiscal side. A balanced coordination between the two authorities was focused to restructure the Indonesian economy in the long run, even though those directives might bring a slowing national income growth, indeed to 5.8%, and an 8.4% inflation rate.
Growth in Gross Domestic Product
GDP per Capita (USD) GDP Growth (yoy)
2010 2011 2009
2,292 4.6%
2,975
6.3% 6.5%
3,394
2012 2013 3,573
5.8%
3,490 6.3%
Overall, the Indonesian economy still showed good performance. The main factor of Gross Domestic Product (GDP) growth still came from public consumption even amid rising unemployment and a decline in per capita national income. There were also improvements in the quality of government expenditure evidenced by the contribution to GDP and the effectiveness of their allocation.
The second propulsion of the economy was investment flow both from overseas and within the country. The proportion of foreign investment to GDP has dropped 0.4% in line with the data or the realization of capital inflows recorded by BI. On the other hand, there has been improvement in the volume of exports due to Indonesian Rupiah exchange rate devaluation that reached 16.5% against currencies of Indonesia’s key trading partners.
Strengthening of Productive Banking Structure
In general, the performance of banks in Indonesia remained solid despite a tendency to decline, where industry profits shrank from 23.6 % in 2012 to 14.9 %. This was due to slower growth of financing, adaptation between deposit and financing rates in response to the higher BI interest
performing loans – NPLs - declined. Other key indicators such as ROA and BOPO showed steady performance and strong resistance against external and domestic fluctuations.
Banking intermediation function
Loan to Deposit Ratio Credit (yoy) Third Party Fund (yoy)
2009 2010 72.9%
75.5%
2011 2012 2013
84.0%
89.9%
13.6%
21.8%
79.0%
Loan Growth by Type of financing
Working Capital Credit yoy
Investment Credit Consumption Credit
2010 2011
2009 2012 2013
35.0%
20.4%
13.7%
40%
30%
20%
10%
0%
Bank Indonesia took various efforts to encourage the banking industry to become a source of funding conducive to economic activities. Primary focus was how improve the quality of assets and banking operations. BI directed the LDR to between 78% - 92% in addition to attention it paid to industry performance which in turn depressed the NIM. Credit distribution to consumer sectors whose growth had crossed reasonable limits was tightly controlled indicated by a slowdown in bank consumer credit that gained 13.7%, down from 19.9% in 2012. Meanwhile, accelerated investment loans were attributable to the weakened Indonesian currency, which suppressed the country’ competitiveness through financing needs of some imported raw materials.
Table of the Banking Industry
Description Unit
Year Quarter
2011 2012 2013 % yoy 1Q13 2Q13 3Q13 4Q13
Assets Rp trillion 3,653 4,263 4,954 16 4,314 4,462 4,737 4,954
Customers’ Deposits Rp trillion 2,785 3,225 3,664 14 3,121 3,247 3,402 3,664
Loans Rp trillion 2,200 2,708 3,293 22 2,768 2,959 3,147 3,293
Capital Rp trillion 405 497 627 26 565 567 601 627
Net Interest Income Rp trillion 179 208 243 17 56 114 176 243
Operating Income Rp trillion 89 115 132 15 31 62 96 132
Net Income Rp trillion 75 93 107 15 25 51 79 107
Ratio Unit 2011 2012 2013 6 1Q13 2Q13 3Q13 4Q13
Net Interest Margin % 5.9 5.5 4.9 (0.6) 5.4 5.4 5.5 4.9
Return on Assets % 3.0 3.1 3.1 (0.0) 3.0 3.0 3.1 3.1
BOPO % 85.4 74.1 74.1 (0.0) 75.1 74.7 74.3 74.1
LDR % 79.0 84.0 89.9 5.9 85.4 87.7 89.3 89.9
Non-Performing Loans % 2.2 1.9 1.8 (0.1) 2.0 1.9 1.9 1.8
CAR % 16.1 17.4 18.1 0.7 19.1 18.1 18.1 18.1
Total Banks Unit 120 120 120 - 120 120 120 120