Bank Mandiri Outlook Perekonomian Indonesia 2017

(1)

November, 2016

Indonesia Economic Prospects and Investment Opportunities

Anton H Gunawan

Chief Economist of Bank Mandiri Presentation Material

0

(2)

Will Indonesian economy keep growing?

• The consumption gradual rebound, but still subdued economic growth

• Low inflation and relatively small CA Deficit reflect the weak economy

• BI has started to ease her monetary policy stance – room to further ease is small

• Main risks: tax shortfall, thus widening deficit, but still within fiscal rule

(3)

Indonesia

Brazil Turkey

South Africa India

average GDP growth

in 5 years

5.3%

2.9%

6.7%

4.4%

1.0%

2.1%

5.5%

Country

source: IMF world economic outlook, IIF, Bloomberg

Indonesian macroeconomic indicators are mostly better among the EMs

Malaysia Thailand

average GDP growth

in 10 years

4.9%

3.3%

7.5%

3.8%

2.8%

2.6%

5.8%

Current Account Balance

3.4%

9.5%

-1.3%

-4.0%

-1.1%

-3.9%

-2.4%

Fiscal Balance

-3.3%

-0.4%

-7.0%

-1.9%

-8.7%

-3.7%

-1.9%

1.5%

-0.9%

4.3%

7.2%

9.0%

4.6%

3.3%

123.0 93.5 128.6 271.4 270.3 232.0 153.7 Inflation

(YoY) CDS

180 33 501 840 954 686 551 Gov. Bond

spread to UST (bps)

2

(4)

Country / Elasticity

1.72 1.45 2.15

1.10 0.81 0.90

0.88 0.77 0.85

0.60 0.49 0.27

0.05 0.06 0.11

The global economic growth is still fragile...

... Drives for further monetary easing in

major central banks, except for the US. Commodity price will stay flat to 2017

Global economy is still at risk vs uncertainty, Indonesian economy slow recovery

Indonesia’s economic growth will only slightly better next year…

World US EU Japan China

2016F 2017F 2016F 2017F

3.1 3.4 2.4 2.8

2.2 2.5 1.9 2.2

1.6 1.4 1.6 1.6

0.3 0.1 0.5 0.5

6.6 6.2 6.7 6.5

US - Fed Funds Rate EU - ECB Rate UK - BOE Rate Japan - BoJ Rate India - RBI Rate

2016F 2017F

0.65 1.20

0.00 0.00

0.10 0.15

-0.1 -0.2

6.35 6.25

Bank Indonesia Min. of Finance IMF

World Bank Bank Mandiri

4.9 - 5.3 5.1 - 5.5

5.1 5.1

4.8 5.3

5.1 5.3

5.0 5.1

(%, YoY) (%)

(%, YoY) 2016F 2017F

(USD/bbl) 2017F : 51.3 2016F : 48.8

(USD/KG) 2017F : 1.23 2016F : 1.05 (USD/MT)

2017F : 52.3 2016F : 53.4

(RM/MT) 2017F :

2,54 2016F :

2,59

Source: OJK, IMF, World Bank, Bloomberg

Indonesia is more affected by China than the US

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Three domestic concerns

Four changes in Paradigm

• Economic Slowdown along with low and declining productivity  Lacking ease of doing business and industry strategy

• Food Inflation: reducing purchasing power, although headline inflation still benign  confusing database and a combination of El Nino (2015)/La Nina (2016) problems

• Financial Sector Stability: volatile markets & weakening banks’ asset quality

• Archipelagic Concept: inter-connectivity and regional development are key parts of the country’s development

• Reducing Dependency on Raw Commodities: including looking for (i) areas of exports & domestic demand expansions, and (ii) new sources of fiscal revenues

• Reallocation of Scarce Resources: transforming general price subsidy program into directly targeted subsidy program (fuel, fertilizer, electricity)

• Promoting Maritime Economy: fishery and tourism services?

Four policy responses

• Fiscal Policy: Expansionary (intention), but relatively Neutral (in reality, thus far).

Potential moderate fiscal risks ahead. Need a less restrictive fiscal rule?

• Monetary Policy: Start Easing (lowering rates, injecting liquidity, macro-prudential policies not having a significant impact yet). Transmission channel not fully working yet.

• De-regulation/-bureaucratization and Structural Reform Policies: Can support growth by cutting costs of doing business, and speed up investments.

• Promoting Agglomeration to Develop Special Economic Zones: may need manufacturing based transmigration policy?

Cabinet Reshuffle gives more support for economic reform push

(6)

Key words are archipelagic concept and inter-connectivity, and SEZ

SEZ : special economic zone SEZ Tanjung Api- api, South Sumatera

SEZ Sei Mangkai, North

Sumatera

SEZ Tanjung Lesung, Banten

SEZ Mandalika, North Nusa Tenggara

SEZ Palu, Central Sulawesi

SEZ Bitung, North

Sulawesi

SEZ Morotai, North Maluku

Source : Coordinating Ministry of Economy

Bitung Port Kuala Tanjung

Sea toll route

1

2

3

4

5

1

Belawan

2

Tanjung Priok

3

Tanjung Perak

4

Makassar

5

Sorong

New seaport facilities will improve trade China will build “silk road” through

the sea, connecting China - Europe

(7)

Commodity producing regions got the hardest hit by commodity price bust, which came with a time lag

Economic Growth By Province, 2Q16 (% yoy)

Aceh 3.54

Sumut 5.67

Riau 2.40

Kepri 5.40

Sumbar

5.78 Jambi 3.57 Bengkulu

5.41

Sumsel 5.13

Babel 3.67

Lampung 5.21 DKI

5.86 Banten

5.13

Jabar 5.88

Jateng 5.75

DIY 5.57

Jatim 5.62

Bali

6.53 NTB

9.92 NTT

5.29 Kalbar

4.21

Kalteng 5..72

Kaltim -1.30

Kalsel 3.98

Sulut Gorontalo 6.14

5.40 Sulteng

15.52 Sulbar

4.57

Sulsel 8.02

Sultra 6.82

Malut 6.64

Maluku 6.48

Pabar 3.38

Papua -5.91 Kaltara

2.26

> 7 5.5 - 7 4 - 5.49

<4

Source: BPS

21

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Jakarta

% to national GDP Average GDP growth

West Java Central Java East Java

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

8.7 3.7

5.1 3.7

2.3 4.1

5.0 2.9

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

5.1 7.0

2.5 -1.2 0.9 -1.4

1.2 2.1

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

11.8 8.3 15.3 3.1

9.2 6.1

16.0 6.2

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

15.7 8.0 15.3 1.9

7.5 5.4

13.3 5.9

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

10.7 7.0 10.1 3.1

4.4 5.6

8.9 5.3

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

15.1 6.6 14.5 2.8

8.0 6.2

14.7 6.1 1983 - 1993

1994 - 2003 2004- 2010 2011- 2015

5.5 5.1

5.2 4.9

2.7 3.2

5.5 3.2

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

5.1 8.3

5.8 4.2

2.7 6.1

4.8 5.9

Aceh

North Sumatera

Riau East Kalimantan

Government’s development program will have to cut the disparity between Western and Eastern part of Indonesia

Source : CEIC

1983 - 1993 1994 - 2003 2004- 2010 2011- 2015

NA NA

1.34 5.9 1.29 3.55

Papua

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Aceh 2,05 jt; 8,13%

Sumut 6,17jt; 6,49%

Riau 2,84jt; 5,94%

Kepri 0,83jt; 9,03%

Sumbar 2,43jt; 5,41%

Jambi 1,62jt, 4,66%

Bengkulu 0,96jt; 3,84%

Sumsel 3,89jt; 3,94%

Babel 0,65jt; 6,17%

Lampung 3,85jt; 4,54%

DKI 5jt; 5,77%

Banten

5,23jt; 7,95% Jabar 20,28jt; 8,57%

Jateng 17,16jt; 4,2%

DIY 2,04jt; 2,81%

Jatim 19,65jt; 4,14%

Bali 2,33jt; 2,12%

NTB

2,3jt; 3,66% NTT

2,36jt; 3,59%

Kalbar 2,31jt; 4,58%

Kalteng 1,24jt; 3,67%

Kaltim 1,5jt; 8,86%

Kalsel 1,98jt; 3,63%

Sulut 1,09jt; 7,82%

Gorontalo 0,54jt; 3,88%

Sulteng 1,44jt; 3,46%

Sulbar 0,62jt; 2,72%

Sulsel 3,58jt; 5,11%

Sultra 1,17jt; 3,78%

Malut 0,51jt; 3,43%

Maluku 0,68jt; 6,98%

Pabar 0,41jt; 5,73%

Papua 1,69jt; 2,97%

Peta Kontribusi Industri Manufaktur, JumlahTenaga Kerja dan Tingkat Pengangguran Terbuka (2015)

Formulating industrial policy (1)  Map of manufacturing and employment

Sumber: BPS, Keterangan:

(i) Shareindustri manufaktur per provinsi

> 20% (9 provinsi)

>10% – ≤ 20% (13 provinsi)

≤10 (12 provinsi)

(ii) Angka di tiap provinsi menunjukkan jumlah tenaga kerja (juta) dan tingkat pengangguran

terbuka (%),

(10)

33.4 29.9

3.51 Tenaga Listrik

Yang Dibangkitkan

Listrik yang Didistribusikan

Defisit/ Surplus Sumatera

173.37 145.54

27.84

Tenaga Listrik Yang Dibangkitkan

Defisit/ Surplus Jawa

4.89 6.24

-1.35 Tenaga Listrik

Yang Dibangkitkan

Defisit/ Surplus Balnusra

2.26 2.04

0.22 Tenaga Listrik

Yang Dibangkitkan

Defisit/ Surplus Maluku Papua

7.67 7.83

-0,15 Tenaga Listrik

Yang Dibangkitkan

Defisit/ Surplus Sulawesi

10.22 8.35

1,88 Tenaga Listrik

Yang Dibangkitkan

Defisit/ Surplus Kalimantan

Peta Nilai Proyek Infrastruktur per Provinsi Sampai Dengan Tahun 2016 (Rp. Trilyun) dan Produksi Listrik per Pulau (Ribu MWH)

Sumber: BCI 2016, BPS dan PLN.

>20 triliun (1 provinsi) 10− ≤20 triliun (4 provinsi) 1 − 10 triliun (15 provinsi)

≤ 1 triliun (14 provinsi) Keterangan:

Nilai Proyek Infrastruktur 2016

Formulating industrial policy (2)  Map of infrastructures, incl. electricity

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14,603

13,173 13,500

13,100 GDP growth is expected to reach 5.0% in

2016 and 5.1% in 2017

Inflation will stay at 4.2% next year and BI will keep 7-days RR at low level

USDIDR will be stable at 13,100 until next year

forecast

Lower inflation and interest rate prior to 2017 will benefit domestic economy in the midst of global volatility

Source : Bloomberg, CEIC, Bank Mandiri forecast

(%)

3.30

9.60 6.50 4.75

2 3 4 5 6 7 8 9 10

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16F

Inflasi Yield 10 Yr GB 7 Days RR

4.96 5.04

4.66

5.04

4.92 5.18

5.02 5.00

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16F

forecast

(12)

GDP growth and value added tax growth

Economic growth slowed in 3Q16  Some questions on the sources

VAT growth back to negative as economic growth slowed

Government spending realization (IDR tn)

9M accumulation of government spending

9M accumulation of material and capital expenditure

Source : CEIC, Ministry of Finance

774

968 1,093

1,235 1,249 1,305

2011 2012 2013 2014 2015 2016

104.5

135.3 155.5 158.1

185.0

241.6

2011 2012 2013 2014 2015 2016

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Des-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

VAT growth y-y (LHS) GDP growth y-y (RHS)

(13)

Cement sales growth (% YoY) Vehicle and motorcycle sales

growth (% YoY) Retail sales index

Mixed performances in some benchmark indicators : seasonal pick up in retail sales

-15 -10 -5 0 5 10 15

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

National Jakarta

Java ex. Jakarta Ex. Java

-5 0 5 10 15 20 25 30 35 40

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

National Jakarta

-50 0 50 100 150

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

National Greater Jakarta

Rest of Java Ex. Java

Ramayana SSSG (% MoM) Aces Hardware SSSG (% MoM) Matahari Dept. Store SSSG (% YoY)

Greater Jakarta : -2.7 National :

+5.4

Jakarta : -3.3 National: -4.9

National: +40 (2Q16)

19.5

6.8 3.1 1.9

9.0 -2.7

Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

11.6 0.1 -8.9 -1.7

-27.7 -7.8

Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

Vehicle sales Motorcycle sales

177.50 190.10

218.70 206.7

Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

12

(14)

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

IDR1-2 mn IDR2-3 mn IDR3-4 mn IDR4-5 mn >IDR5 mn

80 90 100 110 120 130 140 150

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

Expectation : Income Expectation : Business Condition Expectation : Employment

80 90 100 110 120 130

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

CCI CCI : Present Situation CCI : Expectation

Consumer Expectation Index Growth by groups of monthly expenditures (%) Consumer Confidence Index Growth by Groups

of monthly expenditures (%)

Consumer Confidence Index (CCI) Consumer Expectation Index

Source: Bank Indonesia, CEIC

Oct -16

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

IDR1-2 mn IDR2-3 mn IDR3-4 mn

IDR4-5 mn >IDR5 mn

Oct -16

Consumer confidence had improved in October...

Expectation of almost all groups of consumers picked up

13

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Sector

Current Market Demand Assessment b)

Indicator

Growth (%, yoy)

Notes Jan-Juni 2015 2015 Jan-Juni 2016

Retail Positive Ramayana sales

-4.0^b) -2.0

6.9

^a)

Consumer confidence is flat

Ace Hardware sales 3.4

^b)

4.7 5.2

^a)

Automotive ^Neutral

Total car sales

-18.2 -16.1

1.2 Consumer confidence is flat

Commercial vehicle

-15.4 -16.6 -30.0

Passenger vehicle

-19.1 -16.0

12.5 Total motorcycle sales

-24.1â) -17.6â) -9.1â)

Property Negative Total Marketing Sales of eight

companies ^24.4

^-4.3 ^-39.8

Consumer confidence is flat and interest rates are still high

Cement ^Positive Total sales

-3.6 ^b)

0.9 4.0

^a)

Sales growth is supported by government infrastructure

projects

Heavy

Equipment ^Negative

Total sales

-37.7 -39.5 -24.7

Demand from commodity sector has not yet fully recovered even

though commodity prices increased

Forestry segment

-7.6 -9.3 -48.3

Agro segment

-60.4 -63.2 -46.8

Mining segment

-44.4 -49.9 -45.1

Construction segment

-26.8 -22.3

19.9 Sea Transport Negative Loading and unloading

activities in the 5 main ports

^-7.6 ^-8.2 ^-9.8

Volume of trade has not yet increased, especially in

commodities sector

Oil ^Negative CAPEX (Investments) n.a.

-2.6 -14.9 ^c)

Oil price is still low

CPO Negative Volume of exports 24.1

^a)

15.6

-17.2

CPO price has consistently

increased but still needs time to impact the export performance

Value of exports 5.3

^a) -11.9 -22.0

Coal Negative Volume of exports

-5.4 -7.8 -8.2

Coal price remains low

Value of exports

-17.3 -21.2 -26.2

Notes : a) January-July b) the status is not OCE Industry Rating; c) 2016 plan (full year); n.a. data not available

Industrial sales performance in 1H16: many still in the red territory

(16)

Production capacity utilization trend Indonesia’s PMI trend

Source : CEIC

...but (Private) Investments have not materially picked up, despite a public capex boost

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

50%

55%

60%

65%

70%

75%

80%

Production capacity utilization Chg, YoY (RHS)

45.0 46.0 47.0 48.0 49.0 50.0 51.0 52.0 53.0 54.0 55.0

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16

PMI

Expansion

Contraction

Real gross fixed capital formation growth

4%

5%

6%

7%

8%

9%

10%

2012 2013 2014 2015 9M16

Gross fixed capital formation - YoY

15

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Earnings Asset Dec-14 Dec-15 Jun-16

Current 4,309 4,720 4,945

Special mention 143 184 210

Sub standard 13 18 23

Doubtful 14 13 21

Loss 52 68 79

Deteriorating banking sector’s asset quality:

NPL still stays above 3.0%. Rising special mention loans due to restructuring and weak economy

Source : Indonesian banking statistics, June 2016

NPL (%) Credit quality (IDR tn)

NPL by types and earnings asset by categories(IDR tn)

Types of Credit Dec-14 Dec-15 Jun-16

Working Capital 43.8 57.3 73.4

Investment 21.2 27.0 34.5

Consumption 14.3 16.6 19.2

2.37%

2.49%

3.11%

3.05%

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16

100 150 200 250 300 350 400

Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16

Special mention Sub-standard

Doubtful Loss

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-10.1 -9.6

-6.0 -5.1-4.8 -4.7

-12 -10 -8 -6 -4 -2 0 2 4 6 8

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Goods Services Primary Income Secondary Income CAD

CAD improved... ...due to better trade surplus

- -2.2 2.02

-4.3

% to GDP

-4.3

Source : Bank Indonesia, BPS, Bloomberg

Current Account Deficit showed an improvement in 2Q16 compared to 1Q16

Stable CAD and trade balance surplus have reduced the currency risk

1.1 0.5 1.4

-0.4 -0.2

0.0 1.1

0.9

0.4

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

-0.8 -0.3 0.2 0.7 1.2 1.7

Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

Trade balance (USD bn)-LHS Export growth-RHS

Import growth-RHS

14645

13,080

12500 13000 13500 14000 14500 15000

Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16

USDIDR volatility decreases

(USD bn)

17

(19)

Tax Amnesty Revenues – The Result thus far

18

Asset Declaration (Rp tn)

Onshore Declaration

Offshore Declaration (Repatriated)

Offshore Declaration (Non- Repatriated)

Total Declaration

Proportion of total (%)

Cash and cash equivalents 999.0 96.7 280.7 1376.5 38.5

Short term investments and notes 573.1 18.4 424.6 1016.0 28.4

Land, building, and other fixed asset 380.8 2.1 185.4 568.3 15.9

Payables and inventory 397.9 19.7 54.8 472.4 13.2

Precious metals & other non fixed asset 137.3 0.0 4.7 142.0 4.0

Total 2488.1 137.0 950.1 3575.2 100.0

The objectives: 1. Tax Revenues FY 2016  OK

2. Tax Base Enlargement  Somewhat OK

3. Repatriated Money for Economic Growth  Not Really

Source; Ministry of Finance

(20)

Tax Amnesty – The Result thus far

Not so many new tax payers

19

Onshore declaration;

2488.13; 70%

Offshore declaration (Repatriated);

136.99; 4%

Offshore declaration

(Non- repatriated);

950.07; 26%

Asset Declaration on Tax Amnesty Program (Rp tn)

Individual 264,507 72%

Corporate / Institution

76,211 21%

New taxpayers 26,746

7%

Total tax amnesty participants as of Sept16

Proportion to total (%)

Penalty Amount No. of Taxpayers Total Penalty Paid (in IDR tn)

Total Assets (in IDR tn)

< 1 bn 96.82 24.9 34.2

1bn - < 100 bn 3.17 56.4 50.1

≥ 100 bn 0.01 18.7 15.8

Total 100 100 100

Source; Ministry of Finance

(21)

(200) (100) -

100

200 300 400 500

4-Jan-16 13-Jan-16 22-Jan-16 2-Feb-16 12-Feb-16 23-Feb-16 3-Mar-16 15-Mar-16 24-Mar-16 5-Apr-16 14-Apr-16 25-Apr-16 4-May-16 17-May-16 26-May-16 6-Jun-16 15-Jun-16 24-Jun-16 11-Jul-16 20-Jul-16 29-Jul-16 9-Aug-16 19-Aug-16 30-Aug-16 8-Sep-16 20-Sep-16 29-Sep-16 10-Oct-16

Deposit Facility LF/REPO/STTLEMENT SDBI Swap BI

Reverse Repo SBN SBI 9M+SDBI Term Deposit

Outstanding Banking Liquidity

20

Term structure OMO Open market operation Instruments Outstanding (IDR tn)

224.7tn

Outstanding banking liquidity = Open market operation instrument – Swap BI

Banking Sector Liquidity decreased significantly

Placement at BI’s instrument had decreased by IDR110.3 tn from Aug - Sep

298.7 tn

205.5 -110.3 tn

6.25% 6.30% 6.40%

6.85%

6.95%

7.10% 7.15%

5.95%

6%

6.10%

6.50% 6.55%

6.65% 6.70%

5.25%

5.45%

5.70%

6.10%

6.30% 6.40% 6.50%

5.00%

5.20%

5.45%

5.85%

6.05% 6.15%

6.25%

1W RR 2W RR 1M RR 3M SDBI 6M SDBI 9M SBI 12M SBI TS Dec 2015 TS Jan 2016

TS Aug TS Oct 12 2016

33tn

Term repo injection 67tn 34tn

Source: Bank Indonesia

(22)

4.5 5.0 5.5 6.0 6.5 7.0

16-Apr 7-May 28-May 18-Jun 9-Jul 30-Jul 20-Aug 10-Sep 1-Oct

Interbank O/N Interbank 1W Interbank 1M

4.5 5.0 5.5 6.0 6.5 7.0

15-Apr 30-Apr 15-May 30-May 14-Jun 29-Jun 14-Jul 29-Jul 13-Aug 28-Aug 12-Sep 27-Sep 12-Oct

JIBOR ON JIBOR 1W JIBOR 1M

2 1

18.86

17.12

8.24

4 6 8 10 12 14 16 18 20

15-Jun 23-Jun 1-Jul 15-Jul 25-Jul 2-Aug 10-Aug 19-Aug 29-Aug 6-Sep 15-Sep 23-Sep 3-Oct 11-Oct

Interbank money market (IDR tn) JIBOR (%)

There were significant fluctuation in JIBOR O/N & 1W because of tightening liquidity

Interbank money market rate (%)

Tax amnesty period I

Tax amnesty

period I

(23)

More productive expenditure

• Focusing on infrastructure and social spending

• Efficiency in spending for goods

• Maintaining the budget for health (5%) and education (20%)

• Flexibility in responding economic condition

• Mitigation in natural disaster and fiscal risk

• Acceleration of budget absorption

Energy

• Continuing the subsidy for Diesel fuel

• Closed/targeted distribution of 3kg LPG

• Electricity subsidy for Targeted Households (RTS) using an integrated database (PBDT 2015)

Non energy

• Improving the accuracy of subsidy target

• Reformulating the calculation for the General Allocation Fund (DAU)

• Improving the allocation, distribution and usage of Revenue Sharing Fund (DBH) .

• Improving the allocation of Special Transfer Fund (DTK) to accelerate basic infrastructure development .

• Gradual increase of the Village Fund to fulfill Law No. 6 of 2014, while still considering the fiscal capacity of the state

Subsidies are better targeted

Strengthening fiscal decentralization

Prudent Fiscal Policies: The government has taken several reform initiatives

22

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6.25% 6.30% 6.40%

6.85%

6.95%7.10% 7.15%

4.75%

4.95%5.20%

5.60%

5.80% 5.90%6.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

1W RR 2W RR 1M RR 3M SDBI

6M SDBI

9M SBI 12M SBI TS Dec 2015 TS 21 Oct 2016

LF : 5.5%

DF : 4% (3)

(2) (1) - 1 2 3 4

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

Real interest rates : 1.45

The real interest rate is still relatively lucrative for investors

BI has cut policy rate by 150 bps this year

Source: Bloomberg, CEIC

On monetary side: There is still room for loosening monetary policy going forward to support growth

Spread 7D RR and inflation (%)

23

(25)

The Rupiah has performed better than peers, and there is still room for strengthening, amid global volatility constraint

Source: Bloomberg, BIS

-21.3%

-13.2%

-5.7%

-3.5%

-3.2%

-2.8%

-2.0%

0.1%

1.0%

3.1%

4.2%

-1.2%

-24% -20% -16% -12% -8% -4% 0% 4%

BRL JPY IDR KRW MYR THB SGD USD INR PHP CNY

ASEAN avg Local currency/US$

(as of 26 Oct16, YtD)

121

92 112

78 103

85

60 70 80 90 100 110 120 130 140

Mar-11 Feb-12 Jan-13 Dec-13 Nov-14 Oct-15 Sep-16 Broad REER, 2010 = 100

China Indonesia

Korea Russia

ASEAN-5 ex Indonesia Fragile-5 ex Indonesia Appreciate

Depreciate

(26)

Banking Sector Updates

25

(27)

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

25%

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16

Growth Credit YoY Growth DPK YoY

- 0.50 1.00 1.50 2.00 2.50 3.00 3.50

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

Saldo CKPN Kredit (% yoy) - lhs NPL(%) - rhs

Agu-16

Sumber: Statistik Perbankan Indonesia Agustus 2016

NPL & Impairment on loan (% yoy)

5,6 6,8 16,0

23,1

Agu-16

3,22

30,9

Sumber: Statistik Perbankan Indonesia Agustus 2016 -20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

9,1

Agu-16

Banking loan & third party deposit growth (% yoy)

Growth of net profit (% yoy)

NPL and impairment on loans (%yoy)

The economic slow down had caused the loan and funding growth to slowed significantly

Higher NPL also force banks to put higher provision on loan losses

26

(28)

Loan to Deposit Ratio (%) Growth of interest income and interest expense (% yoy)

Tight liquidity becomes a big issue when bank plans to accelerate lending  higher LDR

Single digit policy still become an issue that may reduce the interest income

82.00 84.00 86.00 88.00 90.00 92.00 94.00

90,0

Tightening liquidity may cause the interest expenses to increase..

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

Interest Expenses growth Interest Income growth

1,1

Potential Trajectory (Illustration)

6,2

NII compression Impact of

tightening liquidity

Impact of single digit policy in loans Source: OJK, Indonesian banking statistics

.. and single digit policy still become an issue that may reduce the interest income

27

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15.6%

14.31%

5.93%

5%

7%

9%

11%

13%

15%

17%

Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Deposit growth (YoY) Placement on BI’s instruments

The economic slow down also have an impact to the deposit growth

Liquidity had also tightened because of the cash needed for payment in Tax Amnesty Program

(200) (100) - 100 200

300

400 500

4-Jan-16 13-Jan-16 22-Jan-16 2-Feb-16 12-Feb-16 23-Feb-16 3-Mar-16 15-Mar-16 24-Mar-16 5-Apr-16 14-Apr-16 25-Apr-16 4-May-16 17-May-16 26-May-16 6-Jun-16 15-Jun-16 24-Jun-16 11-Jul-16 20-Jul-16 29-Jul-16 9-Aug-16 19-Aug-16 30-Aug-16 8-Sep-16 20-Sep-16 29-Sep-16 10-Oct-16

Deposit Facility LF/REPO

Swap BI Reverse Repo SBN

SBI 9M+SDBI Term Deposit

Outstanding Banking Liquidity

224.7tn

Outstanding banking liquidity = Open market operation instrument – Swap BI

298.7 tn

205.5 -110.3 tn since tax

amnesty

33tn

Term repo injection 34tn

28