Banks' Profitability Improved
The Indonesian banking industry has shown an interesting development in recent days. In the past few years the banking industry was busy consolidating after a hike in its non-performing loans, but the consolidation has been more than halfway completed. The rise in non-performing loans was due to the drop in the commodity prices, which led many mining companies and their related companies (especially in shipping) to face cash flow problems. The consolidation was helped recently by a rise in commodity prices, especially the price of coal, which improved the cash flow of those companies significantly.
Banks started to release their reports for 2017 a few weeks ago, and these showed that profitability has increased significantly. Bank BRI, the largest bank in the country, was the first state bank to release its financial report for 2017. The bank succeeded in producing a 10% increase in profitability, reaching Rp. 29.04 trillion or roughly $2.2 billion. Bank Mandiri, the second largest bank in the country, also recently released its financial statement. The bank reported a 49.5% increase in profitability in 2017, to reach Rp. 20.6 trillion or roughly $1.5 billion, accelerating its consolidation so it could improve profitability. The third largest bank, Bank BCA (parent only unaudited as reported to OJK), reported a 12% increase in profits to reach Rp. 22.2 trillion or roughly $1.6 billion. The fourth largest bank, Bank BNI, also reported an increase in its profit, of 20.1%, to reach Rp. 13.62 trillion or roughly $1 billion. Most of the profits are being kept within the banks to improve the banks' equity. Currently the capital adequacy ratio of the banking industry has stood at 23.2%, significantly higher than regulation. With that capital strength, the Indonesian banking industry is certainly prepared for further expansion this year.
The story of the Indonesian banking industry reflects the improvement of the economy. The Central Board of Statistics just released the national accounts data, showing that in Q4 2017 the Indonesian economy grew 5.19%. Given that rate of growth, the Indonesian economy grew 5.07% for full-year 2017. The improvement in the economy was mostly driven by better investment expenditure and exports while consumption expenditure remained the largest contributor to GDP. The growth of the economy was also supported by improvement in the balance of payments. The Indonesian current account improved slightly in 2017, from 1.82% of GDP in 2016 to 1.7% of GDP in 2017. Since the financial and capital account in the balance of payments experienced a huge surplus, the overall balance of payments reported a surplus of approximately $11.6 billion, leading the foreign exchange reserves of the Central Bank to rise to $130.2 billion, a record high level.
The Central Board of Statistics also released the balance of trade data for January 2018. Exports that month declined significantly but imports increased marginally, leading the trade deficit to increase from December 2017. Imports hit their highest level of the last two years, while exports reached $14,455.5 million, considerably below the figure for the previous month. However, compared with the same period of the previous year, total exports increased by 7.86%. Meanwhile, imports in January 2018 increased marginally, by 0.26% month over month, to reach $15,132.4 million. Compared with the same period of 2017, imports grew by 26.44%. This resulted in a trade deficit of $676.9 million.
The Central Board of Statistics also released the inflation report, which showed relatively mild inflation for January 2018 at 0.62%, compared to 0.97% inflation in the same period of 2017. With that performance, year-over-year inflation stood at 3.25%, a level at the lower end of the target corridor of the Central Bank. The benign inflation and external balance data led the Central Bank to keep the benchmark interest rate at 4.25% at its monetary policy meeting of February 2018.
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