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Banking

Indonesia: The call to consolidate

Despite a cyclical downturn – which has itself prompted the country’s banks to sharpen up their operations – the sector is in unprecedented good shape. But the banks need to be encouraged to lend more, and this is in part dependent on the consolidation a newly powerful central bank is keen to promote. Nick Parsons reports from Jakarta.

The ironies of Indonesia

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Indonesian banks’ lending growth and profits fell in the first half of the year. But that should only be a short-term story. Taking the longer view, the banking sector – like the overall economy – is looking very encouraging.

Certainly that is what international investors have thought this year. They have reaped rich rewards from the stock market, the currency and government bonds, on the back of their growing faith in the stability of the Susilo Bambang Yudhoyono government and its reform drive.

This is despite the fact that the economy has stuttered along at a declining growth rate of barely 5%.

The same dichotomy can be found in the banking sector. Loan growth slowed to 3.75% in the first half – compared with a staggering 24% surge in 2005 – and banks have posted invariably poor results for the period, largely because of rising fuel prices, growing inflation and lower purchasing power.

However, there has never been a more optimistic environment for banks in Indonesia.

And almost 10 years on from the Asian financial crisis, which had a devastating effect on the country’s banking system, it might be time to ask: how has it recovered? Is the sector for real this time? And what are the opportunities for foreign investors, including banks, that have already garnered half the country’s bank assets in the course of this decade?

“Since 2001/02 the banks have had a pretty good run,” says Jerry Ng, vice-president director at Bank Danamon, which has been the most aggressive lender, particularly to consumers and SMEs.

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