Banking - Bank Indonesia's liquidity stalls, OJK survey reveals the cause

Banking - Bank Indonesia's liquidity stalls, OJK survey reveals the cause The Indonesian banking industry is still overshadowed by tight liquidity challenges for the remainder of 2024, despite global and domestic central banks having cut benchmark interest rates. There are a small number of banks that feel pessimistic about achieving the target growth of third-party funds (DPK) according to the bank's business plan (RBB) for 2024. This was revealed in the Report on the Results of the Banking Business Orientation Survey by the Financial Services Authority (OJK) for the fourth quarter of 2024. Some of the factors include the limited growth of the lower middle class, which affects both credit demand and DPK growth. Additionally, the banking respondents also mentioned that the tight competition in interest rates among banks is another factor contributing to the pessimism in achieving targets. The banking sector has also formulated several strategies to increase fund collection, especially low-cost funds, considering that customers are very sensitive to interest rates. The SBPO for the fourth quarter of 2024 also predicts that DPK growth will be primarily driven by deposits. Meanwhile, DPK interest rates are expected to tend to decrease compared to the third quarter of 2024, in line with the BI-Rate, which has experienced a decline in September 2024. (Source : Kontan) Comment : We anticipate that tight liquidity conditions will persist. However, we expect total deposit growth in 2025 to be higher year-over-year, driven by our expectation in lower yields on marketable securities, particularly the SRBI. This decline in borrowing costs is expected to benefit banks' net interest margins (NIMs), even if total third-party fund (TPF) growth remains similar to 2024 levels. We maintain our overweight stance on the banking sector, with Bank Central Asia (BBCA) and Bank Mandiri (BMRI) as our top picks. In the Islamic banking segment, we favor Bank Rakyat Indonesia Syariah (BRIS).