Banking - Consumer loan will revive along with the decline in benchmark rate

Banking - Consumer loan will revive along with the decline in benchmark rate The recent 25-basis-point reduction in the benchmark interest rate (BI-Rate) to 5.75% is anticipated to invigorate consumer credit performance, particularly within sectors such as property and vehicle financing. While consumer credit exhibited a robust 10.8% year-on-year growth in November 2024, reaching IDR2,191.2 tn, this increment marginally moderated from the preceding month's 10.9% expansion. Multipurpose loans led the charge with an 11.2% growth rate, followed closely by motor vehicle loans (10.5%) and home ownership loans (10.3%). This favorable interest rate environment has instilled optimism within the banking sector. Corina Leyla Karnalies, Director of Retail Banking at BNI, expressed confidence in surpassing a 13% year-on-year growth trajectory for consumer credit in 2025. Similarly, Reza Adriansyah, Senior Vice President of Consumer Loans at Bank Mandiri, expressed unwavering optimism for continued double-digit growth, underpinned by supportive government policies and regulatory backing. (Source : Kontan) Comment : While the recent reduction in the benchmark interest rate is anticipated to stimulate consumer credit demand, particularly within property and vehicle financing sectors, we posit a discernible lag effect. Historically, a six-month period is typically required for benchmark rate adjustments to fully permeate loan yields. Furthermore, prevailing economic uncertainty and subdued consumer spending may exacerbate this wait-and-see attitude, potentially delaying the full impact of the interest rate reduction. We project mortgage demand to outpace auto financing in 2025, given that the latter's growth is likely to be primarily driven by a low base effect rather than robust underlying demand. Furthermore, we anticipate wholesale loans to remain a pivotal driver of overall loan growth this year. In all, our Overweight stance on the banking sector remains firmly in place. We favor BBCA and BMRI as our preferred picks. Within the Islamic banking landscape, BRIS emerges as a compelling investment opportunity.