Banking - LDR ratio rises, tightening liquidity shadows banking in 2Q24

Banking - LDR ratio rises, tightening liquidity shadows banking in 2Q24 Industrial tightening of banking liquidity is projected to continue in the second quarter of 2024. This is reflected in the trend in the loan to deposit ratio (LDR), which is the ratio of third party funds (DPK) to bank credit distribution. The Financial Services Authority (OJK) noted that by April 2024 the LDR ratio of banks in the industry had reached the level of 84.49%. This figure continues to creep up 26 bps on a monthly basis (MoM) from last March's position of 84.23%. Meanwhile, when compared annually (yoy), banking LDR has increased drastically from 80.84% in April 2023. One of the reasons for the increase in LDR was higher credit growth compared to DPK, where banking credit grew 13.09% yoy as of April, while DPK grew 8.21% yoy. (Source: Kontan) Comment : We believe a tight liquidity environment will continue. With the latest increasing +25bps 7DRR, stiffer competition on TPF is unavoidable and has made pressure on bank liquidity higher. The key would be the bank's ability to maintain a solid deposit mix. In all, we think LDR is likely to continue increasing. Yet, it is still more than enough to capture the upcoming loan demand, in our view.