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9/27/13 Indonesia: Banking growth | Financial Services | Indonesia | Oxford Business Group

www.oxfordbusinessgroup.com/economic_updates/indonesia-banking-growth

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often rely on support from foreign parent institutions. With earnings likely to cover loan los ses

major banks, capital would be likely to stay intact in the case of stress . However, Indonesias

smaller lenders are les s well capitalised and more at risk, as the central bank recently noted.

The ratings agencies are not the only ones seeing the strength of Indonesias banks. Recent

research by financial reporting firm Bloomberg suggests the countrys lenders are the most

profitable among the worlds 20 bigges t economies. Return on equity at the five largest banks

market value (all over $5bn) averages 23%, just above Chinas lenders of the same size (21%

more than twice that of the US (9%). Bloomberg ass erts that Indonesias banks could be evenmore profitable if they improved efficiency they currently have high costs relative to asset bas

partly due to the burden of operating branch networks over a huge archipelago.

Profits are driven largely by interest rate spreads the gap between the rate banks offer for

deposi ts and those they offer for loans which averages 7 percentage points at the biggest ba

This is partly due to high dem and for credit in an economy that has been growing strongly for 1

years.

Another reason for the large spreads is to cover those relatively high cos ts; greater efficiency m

enable Indones ias banks to lower their lending rates without affecting profitability. And there is

signi ficant room for growth. Banking penetration as a proportion of the population who have lostands at 28%, but as a proportion of GDP, it represents jus t 30%.

Indonesias big banks have come a long way since the 1997-98 crisis . With credit growing so

quickly, the risk of bad assets is rising with it, but mos t banks seem to be in a position to withs

loss es. High profitability and growth are attracting foreign ins titutions, which can take a stake o

to 99% in Indonesian banks. This may in time increase competition and bring spreads down.

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9/27/13 Indonesia: Banking growth | Financial Services | Indonesia | Oxford Business Group

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Oman is both an ancient maritime pow er and a key desert sultanate, a place

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and culture.

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indonesia banking growth (mar 22, 2013)

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