Banking - Bank credit grows 10.27% yoy in Jan25

Banking - Bank credit grows 10.27% yoy in Jan25 Indonesia's January 2025 bank credit growth reached 10.27%, according to Bank Indonesia (BI), yet remained below the 11-13% target. Governor Warjiyo cited contributing factors like banks reallocating liquid assets, robust Third-Party Fund growth, and enhanced Liquidity Support Policy (KLM) implementation, alongside positive corporate sales despite subdued household consumption. Investment credit led growth at 13.22%, followed by consumption credit at 10.37% and working capital credit at 8.40%. While Sharia financing grew 9.71%, MSME credit growth lagged significantly at 2.88%, raising concerns given their economic importance. BI aims to accelerate credit growth via accommodative macroprudential policies, prioritizing KLM refinement to incentivize lending to strategic sectors for growth and job creation. These sectors include agriculture, trade, manufacturing, transportation, tourism, the creative economy, construction, real estate, and MSMEs, reflecting a focus on sustainable and inclusive growth. BI's commitment is evident in the increased KLM incentives, reaching IDR 295 trillion by mid-February 2025, a substantial IDR36 tn rise from October 2024's IDR259 tn, signaling proactive support for credit expansion and economic activity. (Source : Kontan) Comment : The fact that credit growth is below target despite various supporting factors suggests potential headwinds. While corporate sales are performing well, the limited household consumption could be a contributing factor to the slower-than-expected growth. This warrants further investigation into the reasons behind subdued household spending. We think that following the low based effect previously, financing growth in ‘25F may look flat . On the flip of coin, ‘24F could be translated as high based effect. Navigating the persistent economic uncertainties and the prospect of a prolonged period of elevated interest rates, we anticipate loan growth to remain stagnant year-over-year (see our previous report in Nov24 and Dec24). Looking ahead to 2025, we project a loan growth range of 10-11%, primarily fueled by expansion in the wholesale sector. In terms of credit utilization, we foresee working capital playing a pivotal role in driving overall growth, while the investment segment's performance will be contingent upon broader economic activity. We expect these two sectors to counterbalance any potential softening of demand from the household segment. Maintaining our overweight stance, we identify BRIS as our preferred pick within the Islamic banking sector. Within conventional banking, we favor BBCA and BMRI.