Riska Rahman (The Jakarta Post)
Mon 20 April 2020
The slowdown in loan demand in the first quarter of this year is expected to continue through the end of 2020 and could potentially slow Indonesia’s economic growth as the COVID-19 pandemic hits business activities, said economists.
The latest banking survey released Thursday by Bank Indonesia (BI) showed that the weighted net demand balance for new loans in the first three months of this year reached 23.7%, significantly lower than the fourth quarter figure of l last year by 70.6%.
The weighted net balance is calculated by multiplying the net balance – resulting from the percentage difference of respondents projecting a high and a low – with the weight of each economic sector. A positive result indicates expansion while a negative result reflects contraction.
The slowdown in demand for new loans affects all segments of working capital, investment and consumer loans. However, the largest decline occurred in consumer loans, which contracted 7.6% in the January-March period, compared to growth of 75.8% in the last quarter of 2019.
The drop in demand for consumer loans was caused by a contraction in unsecured lending, while demand for other types of consumer loans, such as mortgages, auto loans and credit cards, has grown. recorded a slowdown in growth, according to the survey results.
Indonesian economist Piter Abdullah of the Center of Reform on Economics (Core) said Jakarta Post Friday that the decline in consumer loans was triggered by the government’s policy of social restraint.
“This has caused a drop in demand for non-food items, like cars and homes, as the policy restricts the mobility of the public,” he said.
Although large-scale social restrictions (PSBB) officially began less than two weeks ago in Jakarta, President Joko “Jokowi” Widodo had urged the public in mid-March to work, study and pray from home for prevent the spread of COVID-19. .
His appeal prompted small and large businesses and shopping malls to temporarily close their doors, while essential businesses like supermarkets and restaurants began to offer only take-out and delivery services.
It is feared that the decline in demand for consumer loans could spill over into lower household spending, which accounts for more than half of Indonesia’s gross domestic product (GDP).
Bank Negara Indonesia (BNI) economist Ryan Kiryanto said consumers would still refrain from applying for new loans given the unfavorable economic situation.
“PSBB’s policy hinders the mobility of people and discourages them from applying for new consumer loans,” he explained. “Economic players will also refrain from requesting new loans pending the latest developments in the pandemic.”
The highly contagious pneumonia-like disease has infected more than 6,500 people nationwide and caused at least 580 deaths as of Sunday afternoon, official data showed.
Fitch Solutions’ country and industry risk research predicts in its Friday memo that private consumption growth in Indonesia will slow to 1.2% this year, from 5% last year due to the surge in the economy. unemployment, as around 2.8 million people have lost their jobs so far due to severe disruption. to commercial activities.
He expects the country’s economic growth to slow to 2.8 percent this year, well below the 5.02 percent reached last year.
Finance Minister Sri Mulyani Indrawati said on March 18 that Indonesia’s economic growth could drop to 4.5-4.9% in the first quarter of this year as the coronavirus pandemic weakens economic activities. The government is also bracing for a slowdown in economic growth this year as it predicted the country’s GDP growth would fall to its lowest level in 21 years of 2.3% in the baseline scenario and even contract to 0.4% in the worst case.
Despite the apparent decline in demand for new loans, the central bank’s survey still reflected optimism that demand will increase in the second quarter of this year due to the easing of loan disbursement policies, in particular. particularly on working capital and loans to small and medium-sized enterprises (SMEs).
Despite the slowdown in economic activities in several major cities, survey respondents were still optimistic about continued growth in the loan disbursement rate this year.
The Ministry of Health had so far approved PSBB requests from at least 16 cities and regencies to curb the spread of COVID-19.
Respondents predict loan growth in 2020 to reach 5.5% year-on-year [yoy], lower than the previous survey by 9.4% and the achievement of loan growth of 6.1% in 2019, ”the survey indicates.
However, Ryan believed that loan growth this year would reach 5% this year, as he expected the pandemic to continue beyond the first half of 2020.
Piter forecast an even lower growth projection of 2-4% this year, saying the pandemic would continue until the third quarter, leading to a further decline in loan supply and demand until at least September. .
“If that happens, the economy will slowly recover in the fourth quarter and the loan disbursement rate will rebound in 2021.”