BALI — The national banking industry, as one of the main sectors supporting the country's economy, is said to need to be more agile in facing economic challenges and opportunities in the future, so that Indonesia's economic condition is better maintained.

This was emphasized by the Chairman of the National Bank Association Organization (PERBANAS) and the President Director of PT Bank Syariah Indonesia Tbk (BRIS) or BSI, Hery Gunardi, at the PERBANAS CFO FORUM II – 2024 Welcoming Dinner in Bali on Thursday (1/8). He further explained that global and national economic and financial dynamics are now changing rapidly.

This opens up big challenges and opportunities for the banking industry, such as the fragmented performance of the global economy, as well as the decline in inflation which is restrained by inflation in service prices.

Quoting world economic outlook data from the International Monetary Fund (IMF), world GDP growth this year is projected to be around 3.2%; the same as last year, but still smaller than 2021 and 2022 which were 6.5% and 3.5% respectively.

“In addition, geopolitical conflict escalation adds to the uncertainty that casts a shadow over future economic prospects; facing global economic and political uncertainty, several countries, including the United States (US), have adopted a policy of high interest rates for longer periods," said Gunardi.

Gunardi continued, presidential elections in a number of countries in 2024 and next year, including in the US, will strengthen uncertainty about the direction of global monetary and fiscal policy. Nevertheless, the World Bank and IMF estimate that the Indonesian economy will grow 5.0% in 2024, supported by domestic demand.

Meanwhile, Bank Indonesia (BI) projects that the country's economic growth will remain good in 2024, in the range of 4.7%-5.5%, supported by maintained household consumption and a positive investment climate.

"Household consumption is expected to remain strong even though it is indicated that it will decline slightly in the second quarter of 2024. It can be seen from the Consumer Confidence Index and retail sales that growth is relatively slower.

"Investment is also expected to remain strong in line with the Manufacturing PMI which remains in the expansionary zone," he continued to explain.

Gunardi also highlighted that amidst conditions of high interest rates, macro liquidity is decreasing. However, liquidity remains adequate, as indicated by the ratio of Liquid Assets to Third Party Funds (DPK), which has decreased but remains high.

According to Gunardi, liquidity is still adequate at a macro level, encouraging banking intermediation to continue to grow solidly because it is supported by accommodative macro prudential policies.

However, the challenge is that credit growth will be accompanied by an increase in Non-Performing Loans (NPL). This certainly raises the risk of credit distribution which is worth continuing to monitor. Thus, liquidity challenges, especially related to banking funding, must be closely monitored in the future.

BI data shows that credit growth in June 2024 grew high at 12.36% on an annual basis/year-on-year (yoy). This growth was driven by strong supply and demand, especially supported by corporate credit. Meanwhile, DPK growth was 8.45% yoy in the same period, while the loan to deposit ratio (LDR) was 85.74%.

Gunardi also said that in the future the yield conditions from SRBI would be very attractive as an effort to stabilize the rupiah exchange rate. SBN issuance is also high considering the large number of government securities that mature in the next 3 years.

“So, banks must continue to innovate to attract funding which is then used for lending. One impact is the potential for an increase in banking costs of funds. "The increase in the cost of funds has the potential to impact banking net interest margins, which will narrow," he said.

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Green & Sustainable Economy

Gunardi continued to explain, on the other hand, the transition towards greener and more sustainable development has become increasingly urgent and has increased in recent years. This also encourages the banking industry to provide financing that is in line with sustainability principles.

The formulation of a Taxonomy for Sustainable Finance by the Financial Services Authority (OJK) shows a real commitment to supporting green financing. This guide, said Gunardi, helps banks identify activities that are classified as sustainable to be funded. The aim is to encourage increased green and sustainable financing.

"As the main driver of financial intermediation in Indonesia, banking has an important role in the transformation of more sustainable development. "Banks' seriousness in supporting sustainable development is marked by the growth of sustainable credit portfolios and the development of sustainable financial products," he said.

In this case, banks are actively implementing Environmental, Social and Governance (ESG) principles in their operations. Namely by showing commitment to social and environmental responsibility.

BI estimates that there is a financing need of US$ 281 billion for Indonesia to achieve the Nationally Determined Contributions (NDC) target in 2030. NDC itself is a commitment prepared by party countries that ratified the Paris Agreement to contribute to reducing Green House Gas (GHG) emissions.

Central bank data also continues to show the growth of green financing, which is currently focused on large banks. Until December 2023, year-to-date (ytd) grew 15.63%. The figure is in the range of IDR 500 trillion from 41 banks, which covers 83.4% of the share of total banking credit in December 2023.

The sectors financed include renewable energy, hydroelectric power plants, green transportation, and environmentally friendly product industries.

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Digital Transformation

In addition, Gunardi also looked at digital transformation in various activities that trigger faster innovation. According to him, the use of digital technology opens up opportunities for banks to increase efficiency, develop new products and provide better services. However, developments in digital technology also present challenges, such as the threat of increasingly sophisticated cyber-attacks.

Therefore, he emphasized that in facing the current economic and financial dynamics, industrial players must adopt an agile work style to move and respond to changes quickly.

Because banks that are able to adapt quickly will have a competitive advantage in facing challenges. You will also be able to take advantage of opportunities amidst rapid changes in an increasingly modern era.

"Transformation towards a green and digital economy is not only a challenge, but also a golden opportunity to create a more sustainable and inclusive future," he concluded. (***)