The top banks in Indonesia have steadily built up their balance sheets; however, their profitability is in decline. Joy Macknight reports.
Emerging markets everywhere are battening down the hatches to weather the brewing currency storm, and Indonesia is no exception. At the end of September – and ahead of the International Monetary Fund and World Bank meeting in Bali in October – Bank Indonesia raised its benchmark interest rate to 5.75%. This marks the fifth hike since May, for a total rise of 1.5%.
The central bank’s main aim is to shore up the rupiah in the face of a strengthening US dollar, which has been putting pressure on emerging market currencies. The rupiah has fallen nine per cent against the dollar this year, the worst performer in Asia after India’s rupee, according to Bloomberg.
The good news is that the country’s top banks have been expanding their balance sheets over the past five years. Bank Rakyat Indonesia, the biggest bank in the country based on total assets, has seen an impressive 62% rise between 2013 and 2017, while Bank Mandiri and Bank Central Asia have seen more moderate – but still substantial – increases of 38% and 36%, respectively. Bank Negara Indonesia, in fourth place, saw the biggest increase in total assets, a 65% jump.
However, all four banks have seen a fall in profitability, as measured by return on assets, over the same period. Despite the downward trend, they remain well above the Asia-Pacific (excluding China and Japan) aggregate profitability of 0.82%.
All data sourced from www.thebankerdatabase.com