deficit, managed to show growth to 5.17%. Further, there was good bank credit
growth as well good capital adequacy and non-performing loan ratio.
GLOBAL ECONOMY
In 2018, global economic development was mainly influenced by expanding economic growth of the United States (US). Initial continuing improvement in US growth had increased global financial market sentiment that the US economy would grow stronger in 2018 compared to the previous year .The strengthening of the US economy also resulted in normalization of US monetary policy.
As a result of improvement in US economic growth, the US Central Bank, or the Fed, decided to raise its benchmark interest rate four times in 2018. Given the simulative US government fiscal policy which encouraged an improvement in industrial performance in line with an increased US domestic demand supported by a rise in consumer confidence; the result was the Fed raising its benchmark interest rate.
There will be several key factors that will influence the global economy in 2019. These factors are: the trade war, the dynamics of the Chinese domestic economy and its effect on monetary policy of China’s Central Bank or PBoC and the value of the Yuan, and the economic dynamics in the Euro-zone. At present, the trade war between China and the US is entering a 3-month ceasefire. However, the market feels that the ceasefire will not last long, and the trade war will continue. Then, the PBoC will attempt to stimulate China’s domestic economy by monetary easing which will have an impact on the Yuan exchange rate. The result will be that the market will see fluctuations in the stock and foreign markets continuing in 2019.
INDONESIAN ECONOMY
The Indonesian economy fluctuated throughout 2018.
This was influenced by a larger current account deficit.
Infrastructure projects absorbed imports far greater than previously estimated. The price of oil during January-September was also much higher than the assumption of the APBN. This caused huge pressures on the import side with the current account deficit reaching more than 3% of GDP in 2018; much higher than initial estimates of market participants.
Bank Indonesia responded to the pressures on the current account deficit and the weakening of the Rupiah by raising the BI 7-Day Repo Rate (7DRR) by 175 basis points between May and November 2018.
The 7DRR rose from 4.25% at the beginning of the year to 6.00% to maintain the Rupiah. The increase in the current account deficit has accentuated a fall in asset prices and caused increasingly heavy pressure on capital outflows from Indonesia.
Indonesia’s economic development will continue to be affected by a current account deficit estimated to be 2.5% of GDP in 2019. Meanwhile, Brent oil prices in the international market are expected to reach an average of USD65 per barrel in 2019, meaning that domestic fuel price adjustments are unlikely to occur.
The combination of the sustainability of infrastructure projects and world oil prices has the potential to keep the current account deficit high, which may make it difficult for the Rupiah to strengthen in 2019.
The fact that the growth of national investment spending tends to slow in an election year is unavoidable. Post-election, moderation in government spending may occur if the State budget assumption for the crude oil price continues to hold.
In 2019, the average annual inflation is expected to reach 3.4%.
Relatively high benchmark interest rates, limited liquidity and CAD positions, which continue to be under pressure, have the potential to cause high volatility in the asset market. In 2019, Rupiah fluctuations are estimated to be in the range of 13,900-14,600 per USD throughout the year.
Relatively high domestic interest rates also have the potential to become a brake for investment growth as well as national banking credit growth and fund raising in the capital market. Assuming BI’s benchmark interest rate is maintained in the range of 6.00% -6.25% the result will be bank loan interest rates that remain high. This will result in growth of bank credit to be around 9.00% in 2019. As a result
GENERAL OVERVIEW: ECONOMY
AND THE BANKING INDUSTRY
of this pace of investment growth, GDP is estimated to only reach 4.50% yoy. This is similar to investment growth in the high interest rate periods in 2014-2016.
With the estimated growth rate of bank credit of this proportion, we expect the money supply growth, as M2, to be around 9.00% in 2019.
General Overview: Economy and the Banking Industry
The interest rate effect will also have an impact on the dynamics of household spending, which is expected to grow by 4.9% in 2019. However, the pace of household expenditure growth will not decline greatly, especially during the election year.
The prospects for Indonesia’s economic development in 2019 are presented in the following table:
Indicator Unit Actual 2018 Projection 2019
Real GDP growth (%, yoy) 5.17 4.9
Inflation (%) 3.13 3.4
Rupiah exchange rate (Rp/US$) avg/year 14,247 14,300
10Y Gov’t bond benchmark (%) 8.00 7.50-8.00
Policy rates (%) 6.00 6.00-6.25
Source: CIMB Niaga Economist
BANKING INDUSTRY OVERVIEW
Banking assets in Indonesia increased from Rp7,387.6 trillion in 2017 to Rp8,068.3 trillion or an increase of 9.21% yoy, in line with the increase in loans provided by the banking sector. This reflects that the intermediary function of the banking sector has improved in 2018 to support Indonesia’s GDP growth, which was posted at 5.17%, with lending activities growing by 12.05% to Rp5,358.0 trillion. In the previous year, along with the improvement in Indonesia’s GDP growth that was posted at 5.07%, bank lending activity increased by 8.35% to Rp4,781.9 trillion.
Nevertheless, the banking industry in Indonesia faces the challenge of a slowdown in the growth of Third Party Funds (TPF) in 2018. Banking deposits slowed down by 6.45% from the position in 2017, which amounted to Rp5,289.4 trillion to Rp5,630.4 trillion in 2018. TPF growth in 2018 was slower than the increase in TPF of 9.36% in 2017. Meanwhile, the banking sector received borrowings as other funding sources in the amount of Rp296.7 trillion in 2018 or an increase of 49.08% from Rp199.1 trillion in the previous year based on FSA Banking Statistics data. The development of loans, assets, and TPF in the last five years is explained in the following graph.
2016 2015
2014 2017 2018
11.6%
25%
20%
15%
10%
5%
0%
8,000
6,000
4,000
2,000
0
TPF Loans
Assets Loans Growth 10.4%
7.9% 8.4%
12.3%
Rp trillion
Source: FSA
In terms of credit usage, banking working capital loans posted the highest credit growth of 13.03% compared to the increase in the previous year, which stood at 8.48%. Banking working capital loans is the largest contribution to total loans to non-bank third parties in the amount of 47.45%, equivalent to Rp2,512.5 trillion. Consumer loans increased by Rp138.3 trillion or an increase of 10.35% to Rp1,473.7 trillion, in line with the growth in household consumption expenditure as a major component of Indonesia’s GDP growth. Meanwhile, investment loan also posted a stronger growth of 10.94% to Rp1,308.7 trillion. The contribution of consumption loan and investment loan to total loans to non-bank third parties in 2018 was 27.83% and 24.72% respectively.
The slowdown in the growth of Third Party Funds (TPF), which reached 6.45% to Rp5,630.5 trillion, was influenced by the slow growth in TPF, especially of current accounts and time deposits. The slowdown in TPF growth was influenced by capital outflows from the Indonesian financial market due to the dynamics in the global economy. Current accounts and time deposits slowed down to 6.61% and 5.75% to Rp1,315.0 trillion and Rp2,490.2 trillion in 2018 compared to the growth in the previous year of 9.72% and 8.98%.
Meanwhile, saving accounts increased by Rp124.0 trillion, an increase of 7.29% to Rp1,825.3 trillion in 2018.
However, the slowdown in the growth of TPF was offset by an increase in borrowings from national banks to Rp296.7 trillion or an increase of 49.08% in 2018 from Rp199.1 trillion in the previous year according to FSA Banking Statistics data. Borrowings by banks in foreign currency reached Rp248.2 trillion, while in Rupiah amounted to Rp48.5 trillion in 2018. Borrowings in 2017 amounted to Rp199.1 trillion, consisting of Rp171.0 trillion in foreign currency and Rp28.1 trillion in Rupiah.
The banking industry in Indonesia was able to maintain strong banking capital performance with a Capital Adequacy Ratio (CAR) of 22.97% in 2018. The strong CAR is needed to sustain the growth of bank loans, which grew by 12.05% in 2018 compared to 8.35%
in the previous year. On the other hand, the banking industry’s Net Interest Margin (NIM) decreased to 5.14%
in 2018 from 5.32% in the previous year due to a rise in BI 7-Day Repo Rate. Nevertheless, Return on Assets (ROA) ratio of banks in 2018 is still relatively stable at 2.55%.
POSITION OF THE BANK IN THE INDONESIAN BANKING INDUSTRY
CIMB Niaga posted a growth of loans by Rp3.3 trillion in 2018. up slightly by 1.80% from Rp185.1 trillion in 2017 to Rp188.5 trillion in 2018. In line with the loan growth, CIMB Niaga’s total assets expanded 0.18% in 2018 to reach Rp266.8 trillion. In terms of customer deposits.
CIMB Niaga had larger total customer deposits of Rp190.8 trillion in 2018 showing a year on year growth of 0.76%. Growth in CIMB Niaga’s loans, assets and customer deposits were in line with the increasing trends of loans, assets, and customer deposits in banking industry.
CIMB Niaga’s NIM ratio was 5.12% in 2018, in line with the banking industry average which recorded by 5.14%.
CIMB Niaga’s CASA ratio improved to 52.61% in 2018 in line with the increasing trend in the banking industry.
As a result of improved asset quality, CIMB Niaga’s NPL-gross ratio improved to 3.11% in 2018. This was in line with improvement of NPL-gross ratios across the banking industry.
CIMB Niaga’s LDR ratio was 97.18% increased by 94 bps in 2018. Where the banking industry’s LDR increased by 474 bps to 94.78%.
CIMB Niaga’s ROA ratio improved to 1.85% in 2018 in line with the increasing trend of ROA ratio in the banking industry.
General Overview: Economy and the Banking Industry
CIMB Niaga’s CAR has shown improvements year after year and reached 19.66% in 2018 corresponding to the banking industry’s CAR that has also shown the same trend every year.
Description 2018 2017 2016
Assets (Rp billion) Industry 8,068,346 7,387,634 6,729,799
CIMB Niaga 266,781 266,305 241,572
Loans (Rp billion) Industry 5,358,012 4,781,931 4,413,414
CIMB Niaga 188,468 185,135 180,164
Customer Deposits (Rp billion) Industry 5,630,448 5,289,377 4,836,758
CIMB Niaga 190,750 189,317 180,571
NIM (%) Industry 5.14 5.32 5.63
CIMB Niaga 5.12 5.60 5.64
CASA Ratio (%) Industry 55.77 55.48 55.33
CIMB Niaga 52.61 52.55 50.84
NPL Ratio-gross (%) Industry 2.37 2.59 2.93
CIMB Niaga 3.11 3.75 3.89
LDR (%) Industry 94.78 90.04 90.70
CIMB Niaga 97.18 96.24 98.38
ROA (%) Industry 2.55 2.45 2.23
CIMB Niaga 1.85 1.70 1.20
CAR (%) Industry 22.97 23.18 22.93
CIMB Niaga 19.66 18.60 17.96
Business segment describe assets and operations engaged in providing products or services that are each subject to different risks and returns. CIMB Niaga divides the business segments based on operating segment and geographical segment.
OPERATING SEGMENTS
An operating segment is a component of entity which:
1. is involved with business activities to generate income and expenses (including income and expenses relating to the transactions with other components with the same entity);
2. has operational results observed regularly by chief decision-makers to make decisions regarding the allocation of resources and to evaluate the work;
and
3. separated financial information is available.
Operating segment are reported in accordance with the internal reporting provided for operational decision-making and responsible for allocating resources to the reportable segment and assesses performance. All operating segment used by CIMB Niaga meet the definition of a reportable segment under SFAS 5 (Revised 2014).
CIMB Niaga has 7 (seven) reportable segment. The following describes the operations in each of CIMB Niaga’s reportable segment:
1. Corporate - includes loans, customer deposits and other transactions, and balances with corporate customers;
2. Treasury and Capital Market - undertake Bank CIMB Niaga’s treasury activities which include transactions in foreign exchange, money market, derivatives, and investing in placements and securities;
3. Transaction Banking - provides a variety of products and services for the Business Banking segment (Corporate, Commercial and MSME) and Bank